South Africa: Buy USD/ZAR
by Stanislava Pravdova, Lars Christensen, Lars Rasmussen
We recommend buying USD/ZAR as a short-term speculative trade. We feel that the likelihood of a correction of the rand within the next days and weeks is significant due to the following:
- • Since the Fed delivered its aggressive rate cut of 50bp on September 18, the South African rand (ZAR) has rebounded very sharply against USD, driven by renewed risk appetite. We believe that it has now become too strong.
- • South Africa runs a substantial current account deficit and fairly large foreign debt and therefore has large funding needs. This makes the currency more vulnerable to changes in risk appetite.
- • Our technical analysts also see a heightened risk of an upside correction in USD/ZAR within the coming days with a target at 7.15 (some resistance at USD/ZAR 7.00).
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