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ZAR: Rand Firmer After Rating Outlook Change, SARB Rate Decision Eyed This Week

ZAR
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Spot USD/ZAR has ground lower in morning trade, with the BBDXY Index virtually unchanged on the day, as market participants digest the change to South Africa's credit rating outlook announced by S&P Global after hours on Friday. The rate last deals at 18.1476, 400 pips shy of the previous day's close, with bears setting their sights on 17.2711, the Nov 7 low. Bulls look for a resumption of gains towards the 18.5 handle and Aug 5 high of 18.6850.

  • S&P changed the outlook on South Africa's BB- rating to positive from stable, noting that "planned acceleration of economic reforms by the new Government of National Unity and a pickup in private investment could bolster prospects more than we expect," while "fiscal consolidation is ongoing." It is worth noting, however, that the rating remained three notches below investment grade.
  • SAGB yields have fallen across the curve early doors, before reluctantly ticking away from worst levels. South Africa's 10-year breakeven inflation rate has dropped to 5.26%, while 5-year rate sits at 4.29% after refreshing cyclical lows at 4.24%. 1x4 FRAs trade 16bp below 3-month JIBAR ahead of the upcoming monetary policy meeting.
  • The South African Reserve Bank (SARB) is expected to reduce the key rate by another 25bp on Thursday. This outcome has been pencilled in by all 17 economists surveyed by Bloomberg, with increasingly benign inflation leaving room to loosen policy.
  • The central bank's interest-rate decision will be preceded by the release of October CPI (expected to slow to the lower end of the target), September retail sales and Q4 BER Business Confidence on Wednesday.
  • The composite BBG Commodity Index has trimmed its initial uptick and last sits 0.2% above neutral levels. The precious metals subindex operates 0.8% higher on the session.
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Spot USD/ZAR has ground lower in morning trade, with the BBDXY Index virtually unchanged on the day, as market participants digest the change to South Africa's credit rating outlook announced by S&P Global after hours on Friday. The rate last deals at 18.1476, 400 pips shy of the previous day's close, with bears setting their sights on 17.2711, the Nov 7 low. Bulls look for a resumption of gains towards the 18.5 handle and Aug 5 high of 18.6850.

  • S&P changed the outlook on South Africa's BB- rating to positive from stable, noting that "planned acceleration of economic reforms by the new Government of National Unity and a pickup in private investment could bolster prospects more than we expect," while "fiscal consolidation is ongoing." It is worth noting, however, that the rating remained three notches below investment grade.
  • SAGB yields have fallen across the curve early doors, before reluctantly ticking away from worst levels. South Africa's 10-year breakeven inflation rate has dropped to 5.26%, while 5-year rate sits at 4.29% after refreshing cyclical lows at 4.24%. 1x4 FRAs trade 16bp below 3-month JIBAR ahead of the upcoming monetary policy meeting.
  • The South African Reserve Bank (SARB) is expected to reduce the key rate by another 25bp on Thursday. This outcome has been pencilled in by all 17 economists surveyed by Bloomberg, with increasingly benign inflation leaving room to loosen policy.
  • The central bank's interest-rate decision will be preceded by the release of October CPI (expected to slow to the lower end of the target), September retail sales and Q4 BER Business Confidence on Wednesday.
  • The composite BBG Commodity Index has trimmed its initial uptick and last sits 0.2% above neutral levels. The precious metals subindex operates 0.8% higher on the session.