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SOUTH AFRICA: BofA Long USD/ZAR on Negative Local and Global Developments

SOUTH AFRICA
  • BofA note that the ANC/DA coalition is less stable than they expected while the US Presidential debates on June 27 increase the risks for EM FX.
  • They are therefore long USDZAR (current: 18.14, open: 17.99). Furthermore, as they do not expect any rate cuts this year, they pay FRA 6x9 (current: 7.92, open: 8.09) and are also bullish on the fiscal story in South Africa.
  • BofA note that risks to the trade are: 1) lack of further fiscal improvements; 2) a better-than-expected global backdrop for EMFX; and 3) lower inflation in South Africa and a more dovish SARB.

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