USD/XAF Outlook: The outlook is slightly weaker, but likely to move sideways as the rate is below its 90-day average and near its recent lows without a clear driver supporting a shift.
Key drivers:
• Rate gap: The Federal Reserve is expected to cut rates in the coming months, while the Bank of Central African States has raised rates to support the XAF amid decreasing foreign reserves.
• Geopolitical tensions: Recent airstrikes in Venezuela by the U.S. have created uncertainty, potentially impacting the USD.
• Fiscal concerns: Cameroon's projected budget deficit raises questions about the economic stability of the region, which could put pressure on the XAF.
Range: The USD/XAF rate is likely to hold steady within its recent range, with minor fluctuations expected.
What could change it:
• Upside risk: Strong economic data from the U.S. that suggests inflation pressures may keep the Federal Reserve from cutting rates faster.
• Downside risk: Further declines in Cameroon's fiscal health or significant geopolitical developments that strain the XAF.
