Key points:
- There is a lot that has unfolded through the past eight months. The introduction of the GNU was a game changer and ensured that the ZAR would become one of the best-performing emerging market currencies. Even since the start of this year, the ZAR has reflected a degree of resilience and surprised many investors who believed that the ZAR might come under greater pressure due to the Trump administration’s policy positions on tariffs and Aid to SA.
- The ZSI has captured that solid performance and continues to show the potential for the ZAR to continue performing well through the months ahead. That is contingent on the global economy not experiencing some sort of shock, such as a stock market sell-off. However, on that front, the Fed will likely intervene with some policy loosening that will reduce the perceived risk to the market and shore up prices.
- Looking at the month ahead, the upcoming budget will be a key event in determining whether the ZSI is justified in remaining this elevated or needs to nudge back down. A budget that introduces reforms and shows real commitment to reducing the budget deficit while not introducing a heavier tax burden would be the best-case scenario. However, with limited fiscal space, a slight tax burden increase might be inevitable. Nonetheless, there is some positive sentiment doing the rounds that will be bolstered should SA also progress in exiting the FATF grey list.
Baseline view:
For now, the ZSI is hinting at ongoing resilience and even the prospect of some ZAR appreciation. That will change should stock markets come under pressure. However, until they do, the positive sentiment reflected in business and consumer confidence measures and the improved growth projections will still support the ZAR. Exporters should, therefore, take advantage of any ZAR weakness should it emerge, as there is a good chance that any ZAR depreciation will not be sustained.
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