Key Points:
- Global central banks are expected to continue easing monetary policy as a mature business cycle applies pressure to economies around the world. While the expected scale of this easing has been dialled back recently, we have seen some aggressive interest rate cuts already. Central banks that cut rates at a greater scale risk damaging the resilience of their currencies, given the relative attractiveness of interest rates across different jurisdictions.
- The US economy has been among the most resilient to the recent downturn, leading to expectations of higher US rates, which may keep the USD supported over time. However, a conservative SARB will help the ZAR remain resilient against the USD while potentially gaining further against the EUR and GBP, where the respective central banks are likely to continue to cut quite aggressively.
Baseline View:
A conservative SARB amid a loosening of global monetary policies to less restrictive or even accommodative levels suggest that the ZAR will maintain some fundamental support over the coming months. Higher interest rates will also ensure that the ZAR’s carry attractiveness remains relatively strong.
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