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South Africa FX 05 February 2021

FX Monthly Chart Book

Shireen Darmalingam

  • The rand has recently been supported by the global search for yield, while very elevated terms of trade also provided strong support. We foresee a modest retreat in the terms of trade in 2H21, on the back of which we pencil in moderate trade-weighted rand depreciation. The resilience of SA’s terms of trade is, in our view, one of the key forecast risks to the SA economy and currency in 2021.
  • While there is renewed concern about the impact of a resurgence in global infections and renewed economic lockdowns (in SA and several other economies), the roll-out of vaccines and indications that they are also effective against newer strains underpin credible expectations for a medium-term global economic recovery, which is a critical assumption to our rand forecasts. SA has received its first batch of 1 million vaccines this week; the government has secured more than 40 million vaccines to be administered during the course of the year.
  • The rand is trading broadly in line with our fair value estimates and we remain relatively constructive about the outlook for the rand. We see the rand ending the year at R15,00/$ and averaging R14,97/$, though this masks more weakness against the other major currencies given that the aforementioned forecasts are influenced by expected dollar weakness.
  • While the rand is still performing relatively well against the dollar, it is 2.3% weaker in the year-to-date following its marked strength and outperformance of peers in the final months of 2020. 

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