USD/ZAR may find some support

Growing China woes and the continued fall in commodity prices have put massive pressure on the ZAR. Risks of further ZAR weakening remain high near term, not least from the approaching Fed hike. USD/ZAR is targeted at13.7 in three months, states Nordea Bank.

The ZAR has a high sensitivity to risks of a sharp slowdown in China as it is the biggest destination for the economy's exports after the Euro area. The fall in precious and industrial metal prices as well as the risks of a China slowdown have resulted in worsened the terms of trade and weakening exports. The CRB metal index is down by about 20% year-to-date. 

Any more devaluations of the CNY by the PBoC or signs of a China slowdown could weigh on commodity prices and thereby also add further weakening pressure on the commodity-dependent currencies, such as the ZAR.

The deterioration of the terms of trade makes it harder for the economy to rebalance the external deficit, increasing the need for ZAR weakness as a channel of adjustment. 

"We thus keep a bearish view on the currency in the near term, which is reflected in the upward revision of our 3-6M forecasts. Longer out our fair value model indicates the USD/ZAR could find some support as commodity prices follow oil prices a bit higher, as forecasted by our oil economist, and rebound somewhat, albeit not to the levels seen before the commodity plunge", added Nordea Bank.