Multi year highs in USD-ZAR

SARB Governor Kganyago yesterday indicated that the recent contraction in the current account deficit will not be sustained over the next 2 years. On the contrary, SARB expect the current account deficit to average 4.5% of GDP.

Surprisingly, all EM currencies are under pressure against USD since last Friday. There is a clear indication now that the Fed will hike rates before the end of the year after all.

The effects of higher interest rates on the Emerging Markets are now major concern. Once again this development has been affected the South African rand. Sentiment towards ZAR is particularly poor. In the meantime USD-ZAR has exceeded the highs of late September. It is clear that once again that South Africa is the most fragile country amongst the EM nations. 

"South Africa's manufacturing production data for September will be published today. The manufacturing data is expected to print -0.7% mom and -2.5% yoy. In our view a negative print relative to expectations will result in further ZAR weakness towards fresh multi-year highs in USD-ZAR", says Commerzbank.