USD/ZAR to trade higher gradually around 14.00 by end-2017

Better-than-expected South African economic data coincided with positive external developments in the past month. Both factors assisted in cushioning the blow to the South African rand from another political scandal in the government that pushed USD/ZAR upwards to 14.75, the weakest level since July.

Since then, the ZAR has retraced certain of the losses, thanks to better than expected economic growth and trade data in the second quarter. However, in the short term, rand is viewed as overvalued at current levels, according to Commerzbank.

Most of the rand’s outperformance relates to projections of looser monetary policy rather than a noticeable improvement in underlying fundamentals. In spite of the recent improvement in economic data, South Africa is still expected to lose its investment grade credit rating later in 2016, stated Commerzbank.

This is expected to have adverse effects on the exchange rates in the months ahead. Thereafter, the ZAR is expected to move gradually higher against the USD. The USD/ZAR is likely to trade at around 15.30 by the end of 2016 and trade at 14 by the end of 2017.