Bottom Line
- On a trade-weighted basis, the ZAR has lost ground. The bulk of the underperformance came against the EUR, one of the best-performing majors over the past four months. The ZAR’s overall undervaluation now stands at approximately 6-7%, which, although not extreme, leaves room for the ZAR to stage a trade-weighted recovery.
- Against the USD, the ZAR remains significantly undervalued but has started its recovery, mostly on the back of the USD losing ground. Against the EUR, the ZAR is at its most undervalued, but that means there is more scope for recovery than further depreciation. The asymmetric risk, therefore, lies in the ZAR regaining lost ground.