Weaker oil prices a boon for ZAR

Key points

• The outlook for global oil prices has been just as volatile as what actual prices have experienced in recent weeks. Although fresh sanctions on Russia and Iran could disrupt trade flows and supply, slowing economic growth is likely to dampen demand. OPEC+ is also hiking output to further pressure prices through higher supply.
• The expected decline in oil prices will have a material impact on SA’s trade account, and its terms of trade will remain positive and assist the ZAR in gaining some resilience. Weaker global oil prices provide an “easy win” as South Africa struggles to build any significant momentum in its reform agenda.

Baseline view

The outlook for weaker oil prices, combined with a strong gold price, and expectations of Fed easing that will continue to support other metals’ prices, means that SA’s terms of trade will remain supported over the coming months. This will provide a strong pillar of support to the ZAR, increasing its resilience and helping it take greater advantage of what will be a softer USD as the Fed cuts rates.

Read more