USD/XAF Outlook: Slightly weaker, but likely to move sideways, as the rate is below its recent average and without a clear driver.
Key drivers:
• Rate gap: The US Federal Reserve is expected to cut rates further, increasing downward pressure on the USD compared to the tightening policies of the Bank of Central African States, which recently raised its key rate to support the XAF.
• Risk/commodities: Ongoing geopolitical tensions in the US are affecting confidence in the dollar, which may lead to volatility.
• One macro factor: The projected deficit in Cameroon's 2026 budget raises concerns about fiscal sustainability, which could weigh on the XAF.
Range: USD/XAF is likely to drift within its recent range as pressures from both currencies balance out.
What could change it:
• Upside risk: A sudden decrease in US jobless claims could revive confidence in the USD.
• Downside risk: Escalation of geopolitical tensions could further weaken the USD and increase volatility.
