ZAR/USD Outlook: Likely to increase as the rand trades significantly above its recent average, supported by strong demand for rand-denominated assets.
Key drivers:
• Rate gap: The South African Reserve Bank has cut interest rates, while the Federal Reserve is expected to implement rate cuts, making ZAR investments more attractive.
• Risk/commodities: The rand has strengthened due to rising precious metals prices, bolstering the currency against the dollar.
• One macro factor: Investor confidence in the ZAR is rising, with global funds increasing allocations to ZAR bonds, reflecting stabilizing inflation and higher yields.
Range: Expect ZAR/USD to hold near recent highs, with potential for movement within its recent 3-month range.
What could change it:
• Upside risk: A positive surprise in upcoming South African economic data could attract additional investment into the rand.
• Downside risk: Renewed geopolitical tensions involving the U.S. could negatively impact the dollar and shift risk perception away from emerging currencies.
