Foreign exchange strategists at CIBC forecast political uncertainty around the ANC election, potentially dropping below 50%, could impact the South African Rand (ZAR) in the near-term outlook.
At the time of writing, the US Dollar to Rand exchange rate is seen trading at 1 USD = 18.5091 ZAR.
Despite the ANC likely remaining the largest party, the analysts suggest that support should fall to 40%, political instability risks rise, affecting the currency.
Speculative investors have increased South African Rand long positions amid declining local bond appetite.
Falling CPI and food prices may improve the macro backdrop, supporting ZAR despite political risks.
Despite this uncertainty, CIBC forecasts USD/ZAR to trade 4% higher (compared to current levels) at 19.25 by Q2 2024, and to fall back to 3.19% higher at 19.10 by Q3 2024.
See our latest USD/ZAR market-implied, mean-weighted forecasts here.
Key Quotes:
“Despite the looming political risk, it is notable that speculative investors have added to ZAR long positions in three of the four weeks into mid-April.”
“The prospect of falling food prices, benefitting the lower income strata most significantly, supports the concept of a more constructive medium to long run macro backdrop, political risks notwithstanding.”
“For those wary of rising political uncertainty the recent political experience of local politics in Johannesburg, the ANC lost local control in 2021, heralding infighting and deepening political delivery problems, is hardly likely to encourage ZAR sentiment.”
“While the ANC remains on course to be the largest party in the Parliament should their support dip towards 40% the risks of political instability, adding additional ZAR headwinds, will become noticeable.”
“Such fears notwithstanding we would expect interest to add to positions should CPI continue to moderate, towards the lower portion of the central bank’s 3-6% price stability mandate.”
“The fortunes of the ANC have retreated against the backdrop of high unemployment, broad economic stagnation, elevated crime and corruption, and ongoing power blackouts.”
