Is it Yellen or Zuma? The pace of the ZAR rout likely to ease as investors eye on policy minutes and SA budget insights

Although the ZAR oscillated within a range of 15.77-16.43/USD range from last week, it went into the weekend largely unchanged on the week at 15.85/USD.

The ZAR initially weakened during the first half of the week in response to the World Bank's downward revision of its 2016 SA GDP estimate (from 1.4% to 0.8%).

However, it recovered during the latter half of the week because of the reduced US policy rate hike concerns associated with a slew of disappointing US data releases.

Despite last week's indecisive price action, we are happy to stick with our quarter-end point forecast of range 16.00/USD.

Considering that the ZAR continues to take direction from US policy rate expectations, investors are likely to pay a lot of attention this week to President Yellen's address to Congress.

The implied probability of a March rate hike by the Fed crashed to 0% after having risen from 8% to 12% on Friday after the US NFP print. Economic and Fed logic dictate a different scenario but the market is having other thoughts and financial conditions are unfortunately tightening fast on the back of the meltdown in stocks and ballooning of credit spreads, the latter to the highest level since the June 2013 taper tantrum.

Meanwhile, this week's State of the Nation Address (SONA) from President Zuma is likely to be this week's domestic center of attention, particularly if the president provides some clues about what could be expected at this month's much anticipated Budget Speech (24 February).

In contrast, we don't think much of a market response to Thursday's local manufacturing production data for December (consensus at 1.5% YoY), because not only are we broadly in line with market expectations, but the ZAR has also repeatedly shown a relatively muted reaction to these data in past months.