USD/ZAR: Room for South African rand to catch up with ongoing recovery in EM currencies MUFG

MUFG Bank analysts consider that the USD/ZAR It will move lower in the coming days. They note that the South African rand has failed to strengthen along with other Emerging Market currencies on growing optimism about a dovish turn from the Federal Reserve and a fuller reopening of the Chinese economy this year.

Notable Statements:

“ZAR has underperformed recently after USD/ZAR failed to break below 200-day moving average support in the middle of this month. This leaves ZAR as one of the worst performing EM currencies ( -1.0% against the USD) year to date”.

“Investor sentiment towards the ZAR has recently been affected by growing concerns about the negative impact on growth in South Africa of worsening restrictions on energy supply, and speculation that a change in the mandate of the ZAR is imminent. central bank.While we acknowledge these internal risks, we believe the ZAR valuation now looks more attractive and offers scope to regain strength alongside the ongoing rebound in EM currencies.”

“The main downside risks in the coming week would be if the Fed and other major central banks trigger a hawkish policy shock that disrupts financial markets and lifts US and USD yields.”