ZAR: USD/ZAR Edges Higher, Global Risk Remains Key

The rand remains on the back foot versus the greenback (BBDXY +0.2%) after suffering heavy losses at the start to the week on the back of the well-documented combination of US recession fears, yen-driven unwinding of carry trades, and souring sentiment towards the tech sector, with geopolitical tensions in the Middle East doing little to improve the mood. Domestic headline flow failed to provide anything to counter or complement the global narrative, with participants trying to gauge Fed rate outlook due to its implications for the trajectory of monetary policy in South Africa. That said, the rand sits towards the upper end of the EMEA scoreboard, with gains for USD/ZAR driven chiefly by the dollar side of the equation.

• Citi (as quoted by Bloomberg) wrote that they are "taking advantage of the recent market disruptions" and taking profit on their long USD/ZAR trade initiated via three-month forwards. They said that "we are in an equity contagion territory now for global EM," but "investors should also look into how rates curves react to the adverse fluctuations to FX."
• Spot USD/ZAR trades at 18.5455, just over 200 pips above neutral levels, with bulls looking for a move beyond yesterday's peak of 18.6850. The next target above is 19.0000/54, a round figure/Jun 6 high. Bears look for a pullback towards Aug 1 low of 18.1064.
• SAGB yields are mostly a tad lower across the curve, albeit off session lows. South Africa's 10-year breakeven inflation rate sit sat 5.85%, ticking away from yesterday's highs.
• The composite BBG Commodity Index has extended losses, shedding 0.3% this morning; yet, precious metals are 0.2% firmer and gold trades marginally higher on the session.