Citi analysts provided insights into currency market trends, maintaining a bearish stance on the US dollar (USD) and anticipating a stronger South African rand (ZAR).
They predicted that the USD would continue to weaken, influenced by declining US economic indicators. The firm expects upcoming US GDP and job data to further drive the USD’s trajectory, particularly emphasizing a potential slowdown in job creation.
Citi’s analysis suggests that South Africa (SA) is poised to achieve higher real interest rates, given the country’s lower-than-expected consumer price index (CPI). The drop in oil prices, measured in local currency, is contributing to a sustained decrease in energy costs.
Additional factors, such as reduced supply-side constraints and lower food and housing inflation, are also expected to exert downward pressure on CPI.
Regarding the South African Reserve Bank (SARB), Citi forecasts a hawkish stance from the central bank, in line with the cautious approach of emerging market (EM) central banks amid global economic uncertainty. The SARB’s position is also influenced by domestic issues, including fiscal concerns and the Value-Added Tax (VAT) saga within the Government of National Unity.
Finally, Citi noted that South Africa has experienced favorable terms of trade, particularly due to a surge in gold prices. The country has reportedly seen the most significant improvement in trade terms among major EMs over the past year, which should support the rand’s performance.
