The South African rand has stood out because the best-performing EM currency against the US dollar since the beginning of the year. Despite its recent appreciation, economists at Capital Economics expect the rand – like most emerging market (EM) currencies – to finish this year weaker against the greenback.
Commodity prices to fall back, US Treasury yields to resume their rise
“After a considerable rally from their lows during the pandemic, we forecast the costs of most industrial and precious metals – key exports of South Africa – to fall by year-end. Similarly, global risk premia are now at very low levels and that we don’t expect them to fall much further. If anything, risk appetite could falter as US Treasury yields rise.”
“We think that a weak economic recovery means the Federal Reserve Bank of South Africa (SARB) will got to keep rates low for extended than most currently anticipate. While South Africa’s fiscal discipline stands out compared to several similar emerging markets, it’s also a explanation for its slow economic recovery and underscores its heavy reliance on loose monetary policy.”
“Rising COVID-19 cases and limited vaccination progress are likely to slow the economic recovery further and lift the likelihood that the govt will got to loosen its austerity measures. therein case, concerns about fiscal sustainability may start to affect the rand.”
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