Monday saw HSBC recommend long USD/ZAR, with...>

RAND: Monday saw HSBC recommend long USD/ZAR, with an entry at ZAR18.35, target

of ZAR19.40 & stop at ZAR17.85. They noted that "the ZAR has been somewhat

stable in Q2 after weakening sig. in Q1. The rebound in the foreign appetite for

domestic gov't bonds has certainly contributed. Following very high vol. &

sizeable outflows due to the Moody's downgrade, the mkt once again appears to

see some merit in S. Africa. Admittedly, the level of yields offered by SAGBs

looks high, the curve is steep & FX hedging is possible. But these variables are

tech in nature & not really new. However, what is new is that S. Africa will

face a deep recession & a much wider fiscal deficit than anyone had anticipated

at the start of '20. The stabilisation in capital outflows may be transitory.

The deficit is now likely to double this year. The financing of such a deficit

will be extremely challenging & the technicalities of the bond mkt will not be

enough to provide lasting support to the ZAR. This is all the more likely since

the SARB is increasing its involvement in the gov't bond mkt. It may have to buy

from foreigners selling &/or from domestic institutions for liquidity purposes

or because there is not sufficient demand from mkt participants. "