Economists at Credit Suisse raise their USD/ZAR target range to 15.50-16.50 (from 14.50-15.50 previously). What’s more, they refrain from setting the new target much above recent highs after a large rally and given that USD/ZAR no longer looks dislocated versus the broader EM FX complex.
“We lift our USD/ZAR target to 15.50-16.50 from 14.50-15.50 previously. Our previous target range looks too low in an environment where the USD overall remains bid.”
“We suspect that some of the latest rand-weakness and underperformance against other highyielders (namely MXN) could have been a result of re-balancing of local portfolios following a multi-month period of outperformance of local assets. These flows, to the extent that they continue, will probably prevent a major and sustained drop in USD/ZAR.”
“We deliberately refrain from setting the upper-end of our new range much above recent highs (of 16.32) because (1) the latest bottom-to-top rally in USD/ZAR (~10% since mid-April) is now only slightly short of the magnitude of two other similar episodes that unfolded in the last 12-month period and; (2) USD/ZAR does not look dislocated relative to the broader EM/FX complex like it did a few weeks ago.”
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