USDZAR Extends Recovery from Multi-Month Lows

Sustained greenback strength continues to be the primary headwind to the rand, with USDZAR now a substantial 1.6% above last week’s multi-month lows and the rand underperforming its EMEA peers on the day. But overall, rand sentiment remains positive despite the looming risk event of the national election on May 29.

• Given that the scale of recovery in USDZAR remains limited so far, attention still falls on the Apr 9 low and key support point at 18.4131. While this level has been pierced, a clear break is needed to strengthen bearish conditions and open 18.2550, the Dec 29 low. Initial resistance is 18.8265, the 50-day EMA.
• JP Morgan note that recent polls point to a tentative recovery of ANC support ahead of national elections. Accordingly, election risk premia in SAGBs has fallen since mid-April, from 30-40bp to 6-20bp. But even with lower election risk premia, JPM say SAGBs are undeniably cheap heading into elections, particularly for 5-10y bonds. In contrast, ZAR FX prices no election risk premia, they say.