South Africa:  USD/ZAR to move further lower later in the year - Danske Bank

According to analysts from Danske Bank, the ZAR might rise later in the year amid better growth prospects in South Africa.

Key Quotes: 

“In Mid-February Cyril Ramaphosa was elected new president of South Africa. The new president has run a pro-business and anti-corruption campaign, trying to distinguish himself from the Zuma administration.”

“The stronger than expected economic recovery and reform-minded start to Ramaphosa’s government will strengthen South Africa’s growth prospects. As a result, we revise up our real GDP forecasts to 2.3% in 2018-19 (previously 1.9% and 2.2%, respectively), which are above Bloomberg consensus forecasts in both years.”

“The South African Reserve Bank (SARB) kept its benchmark repo rate unchanged at 6.75% at the 23 November meeting, against our expectations. Inflation pressures continue to abate, with core inflation having fallen from 6% at the beginning of last year to 4.1% in February while headline inflation was 4% that month, i.e. safely within
the central bank’s 3-6% inflation band. As expected, SARB lowered its policy rate by 25bp at the March meeting, and we think it will lower it another two times in 2018.·

“USD/ZAR has fallen sharply since the appointment of Cyril Ramaphosa as new ANC leader in mid-December. We think most of the positive news has been priced in. The Rand is now hovering about its long-term value, providing limited upside in the short term. Hence we think the USD/ZAR may trade around current levels over the next three months, but then see a further downside move later in the year. Our new forecast for USD/ZAR is 11.80 in 3M before falling further to 11.50 in 6M and 11.00 in 12M.”