Rand Consolidates Gains, USD/ZAR Bears Struggle To Challenge 17.50

Spot USD/ZAR remains on the back foot, last trading at 17.6730, almost 1,700 pips below neutral levels. The pair bottomed out at 17.5780, while bears continue to target yesterday's low of 17.4193. Below there would open Feb 2 low of 16.9317.

• The yen was the big G10 mover overnight, with ZAR/JPY showing below 7.75 as a result. This came on the back of the BoJ's decision to increase the flexibility of its YCC mechanism, in a move that may have implications for EM FX space, due to the yen's status as a popular funding currency for carry trade strategies. ZAR/JPY has reversed losses since, with the yen coming under pressure across the board, and last sits at 7.9377. Bulls look for a clearance of Jul 25 cycle high of 8.0628 as the 50-DMA is approaching the 200-DMA.
• Below-forecast PPI data released yesterday supported expectations of continued disinflation. Nedbank wrote that they "expect the drop in producer inflation tocontinue into July," but "thereafter, the base effects should start to taper off and prices are likely to drift up." They expect the rand to "remain under pressure as global risk appetite seesaws amid the global economic downturn and investors remain wary of SA, with the electricity shortage eroding domestic growth prospects and political rhetoric likely hardening ahead of next year’s elections."
• South Africa's June budget surplus printed at ZAR36.7bn (BBG median estimate: ZAR18.5bn; RTRS median estimate: ZAR36.8bn), after a ZAR16.4bn deficit recorded in May. The data caused little if any market reaction.
• SAGBs have unwound their initial losses and now trade firmer across the curve, with 10-year breakeven inflation rate sitting at 6.37%.