USD/ZAR: An extension in rand negativity is likely – CIBC

The South African rand remains by far the worst-performing major over the last three months. Economists at CIBC Capital Markets expect the ZAR to continue suffering downside momentum. 

ZAR negativity compounded by omicron tourism impact

“After hiking to 3.75% at the last meeting, rates look set to advance by a further 25bp in Q1. The trend of policy tightening risks extending towards 5.0% in the next 12 months, further compromising the recovery narrative in the process.”

“With the key travel season appearing to be materially compromised by travel restrictions, an extension in ZAR negativity is likely.” 

“Although the currency may longer be burdened by a substantive current account shortfall, and therefore not as dependant on hot money inflows, the prospect for rising US rates, impacting those with USD liabilities, allied to the USD likely generating a degree of safe-haven status, favours ongoing ZAR negativity.”

“The backdrop of low levels of vaccination, well below 30%, suggests that another season of tourist dollars looks set to be missed, encouraging near-term USD/ZAR upside.”