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RBC Like Short ZAR vs. MXN, BRL

SOUTH AFRICA
  • Following yesterday’s SARB decision, RBC write that inflation dynamics have been less severe in comparison to peers, and recent speeches from SARB members suggest the bank is hiking towards a more a “neutral” stance. If that’s the case, that would imply another roughly 50-75bps of hikes.
  • They add that policy rates are lagging high-beta peers (namely BRL, CLP, MXN, COP) and it seems unlikely that the SARB would deliver another ~225/245bps of hikes that would be sufficient to put nominal & real rates at the minimum of the current rates range of LatAm peers.
  • As such, SARB’s “front-loading” does not lend much support to ZAR vs its LatAm peers, unless the central bank turns significantly more hawkish.
  • They conclude that if the external backdrop deteriorates further (e.g. Fed turns even more hawkish), that is not likely to prevent the pair from moving higher. As such, they like short ZAR/MXN and long BRL/ZAR from a RV perspective.
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  • Following yesterday’s SARB decision, RBC write that inflation dynamics have been less severe in comparison to peers, and recent speeches from SARB members suggest the bank is hiking towards a more a “neutral” stance. If that’s the case, that would imply another roughly 50-75bps of hikes.
  • They add that policy rates are lagging high-beta peers (namely BRL, CLP, MXN, COP) and it seems unlikely that the SARB would deliver another ~225/245bps of hikes that would be sufficient to put nominal & real rates at the minimum of the current rates range of LatAm peers.
  • As such, SARB’s “front-loading” does not lend much support to ZAR vs its LatAm peers, unless the central bank turns significantly more hawkish.
  • They conclude that if the external backdrop deteriorates further (e.g. Fed turns even more hawkish), that is not likely to prevent the pair from moving higher. As such, they like short ZAR/MXN and long BRL/ZAR from a RV perspective.