ZAR’s depreciation likely seen slowing in the short term

The South African ZAR managed to regain some lost ground last week, despite weak commodity prices, a steady dollar and reduced local policy rate expectations. The country's currency depreciation is expected to slow down over the forth coming months as the Finance Minister Gordhan reassured that the treasury will focus upon fiscal consolidation at next month's budget, while the central bank suggested that the local asset managers might require repatriating some of their offshore investments.

If the foreign investors find renewed value in SA bonds and equities resulting from moderate tightening, then sustained currency depreciation could be limited. ZAR weakness could be restrained if local trade data and fiscal comes in at ZAR 4.7 billion consensus (prev: ZAR1.8billion) and ZAR 19.9 billion  consensus (prev: ZAR -21.8 billion) respectively scheduled later on Friday, as both the results might aid to reduce the economy's heavy external funding requirements.

"We expect the SARB to hike policy rate by 25bp to 6.50% at Thursday's MPC meeting, while the market is pricing in an 82% probability of a 50bp rate hike. If the SARB does indeed only hike rate by 25bp, then we would expect the ZAR to weaken initially", says Barclays in a research note.