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The SA Daily 14 August 2020

ZAR weaker in August

Shireen Darmalingam

  • Most EM currencies have retreated since the beginning of August, with the Turkish lira having shed 5.3% since 1 August and 19% since January. Though the Turkish Central Bank has assured investors that the economy is recovering despite the pandemic, investors are speculating about further interest rates hikes in aid of some stability. The central bank this year has already cut rates by 375 bps in response to the pandemic. Rating agencies too have indicated that the central bank might need to hike rates again sooner rather than later. 
  • The weak Turkish lira is causing contagion for the rand as the exchange rate risk in Turkey has led to increased volatility.
  • The rand has also been also subject to poor SA economic data out this week, now weaker by 2% since 1 August and by 19.7% since January.
  • The rand is currently above its 50-day and 200-day moving averages (R17.03/$ and R16.32/$) and below its 100-day moving average. It has traded in a R17.34/$ to R17.78/$ range this week.
  • We nevertheless expect the rand to strengthen into year-end, to R16.50/$, and then to R15.50/$ in 2021.
  • However, much will depend on the COVID-19 pandemic trajectory and economic activity returning to normal. The rand’s ultimate path will depend on policy reforms to support higher growth, as well as government debt stabilisation. Should the fiscal trajectory not be sustainable when the global economy recovers, the rand will remain vulnerable.

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