At the beginning of May, the South African rand came under downward pressure again against the USD, with USD/ZAR scaling a month high of 15.18 recently, noted Lloyds Bank in a research report. The renewed downward pressure was due to the heightened projection that the S&P will cut the country’s sovereign rate to BBB, below investment grade, later in 2016, added Lloyds Bank. Moreover, the probability of major outflow of portfolio because of a larger foreign divestment in banking sector also led to the downward pressure.
Both the factors are expected to continue weighing on the ZAR’s near-term outlook. But the widely weaker USD and rally of commodities prices should aid in restricting the degree of depreciation, said Lloyds Bank. However, the South African economy is weak and susceptible to renewed weakness. Also, increased uncertainty regarding politics continues around the current leadership of President Zuma.
“We hold to our view that the rand is likely to underperform other emerging market currencies over the forecast period”, noted Lloyds Bank.
