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USD/ZAR Stays Below Neutral Levels, SARB Tightening Bets Keep Moderating

ZAR

Spot USD/ZAR clings to its earlier losses and last deals at ZAR17.2916, down ~450 pips on the day. The cross has generally tracked the moves in the BBDXY index, which continues to trade with bearish bias. Domestic catalysts have been scarce, with all eyes in South Africa on October CPI/SARB rate decision this week.

  • Forward rate agreements are pointing to a moderation in expectations surrounding the amount of near-term monetary policy tightening ahead of the SARB meeting this week as 1x4 FRA vs. 3-Month JIBAR spread keeps narrowing.
  • When it comes to sell-side expectations, as many as 15 out of 20 surveyed by Bloomberg looks for a 75bp rate hike, albeit the consensus view is not fully priced in. Four dovish dissenters in the survey expect a 50bp hike and one hawk has pencilled in a 100bp move.
  • The synchronised compression in FRA/JIBAR spreads for 2023 and 2024 points to the stabilisation in longer term monetary policy outlook and moderating terminal rate expectations. Tomorrow's CPI report may provide a key data input, after an in-line reading inspired notable SARB rate-hike repricing back in August.

Fig. 1: South Africa 1x4 FRA vs. 3-Month JIBAR Spread (bp)

Source: MNI - Market News/Bloomberg

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