USD/ZAR to hover around 13.70-14.30 range amid dollar weakness – Credit Suisse

Economists at Credit Suisse convert their single-point 14.30 USD/ZAR target into a range of 13.70-14.30 as the rand remains subject to appreciation pressure against the US dollar in a global environment with general dollar weakness.

Shifting to a range view for USD/ZAR

“After operating with a single-point USD/ZAR target of 14.30 since 21 April, we now adopt a target range of 13.70-14.30 as markets exhibit an increasing willingness to sell the USD against a range of currencies as US real rates remain depressed and have been able to sustain a bounce in the face of strong US inflation readings.”

“Despite our decision to allow for the possibility of a fall in USD/ZAR by moving to our new range target, we stick to a view that USD/ZAR is close to reaching a bottom after trending downward for many months. We think so because we see falling scope for repatriation flows in South Africa at current USD/ZAR levels, and because we expect moderation in the country’s current account surplus.” 

“A large and sustained break below the low-end of our new target range (i.e. 13.70) would probably require fresh rand-bullish drivers or a lasting and prolonged trend of USD weakness.”

“We see scope for limited intraday volatility in USD/ZAR tomorrow in case one or two members vote for a rate hike or in case the central bank will opt to indicate that the currency has become ‘expensive’. Our base case is that any possible intraday move in USD/ZAR tomorrow is unlikely to develop into a trend or to lead to a break outside our new range.”