ZAR likely to weaken by year-end, USD/ZAR to trade at levels around 14 by end-2017 - Commerzbank

There were concerns that higher risk currencies such as the South African rand would come under pressure due to the Jackson Hole meeting, however, it did not materialise. The USD/ZAR pair continues to gain from the continuous risk-on sentiment and, also the USD. On Tuesday, the pair eased below 13. But there are additional stress tests for ZAR this week, noted Commerzbank in a research report.

South Africa has a couple of indicators releasing this week, including the PMI on Friday. There are worries that the data might disappoint given the flagging economy. The market concentrates mainly on the budget data as rating agencies have demanded a consolidation of public finances. That task would be easier if the economy could overcome the recession and finally gather momentum, stated Commerzbank. The South African Reserve Bank appears to be confident as regards the expected recovery; however, dampened rate cut expectations. The central bank had cut the key rate by 25 basis points to 6.75 percent in July but it stresses that it still sees the risk of inflation.

“Due to the political risks ZAR also contributes to this dilemma. By year-end we expect ZAR to weaken to levels around 14 in USD-ZAR”, added Commerzbank.

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