ZAR performance compares well with EM currencies

Key points

• ZAR’s strength in recent months has perplexed many who continue to think the ZAR should always trade at a deep discount due to the state of the economy, fiscal challenges, and the effects of government maladministration. However, the ZAR is not alone; EM currencies in general have appreciated vs the USD for similar reasons.
• Exposure to commodities, improvements in risk appetite, rotation away from the USD, and better fiscal positions mean that these currencies, including the ZAR, have a firm justification for appreciation.

BASELINE VIEW:

ZAR can sustain its for so long as EM sentiment remains strong, the USD remains vulnerable, and commodity prices remain well supported as investors rotate away from US assets. Importers will enjoy a purple patch.

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