ZAR likely to underperform in 2016

Since mid-December, the ZAR has consolidated through 15 against the US dollar, strengthening from a record low of nearly 18 in January. But a weaker US dollar is mainly responsible for the ZAR strengthening. The South African economy continues to be weak and susceptible to additional softness. Persistent tight monetary policy is a huge obstacle to the economic rebound. Moreover, there is increased uncertainty regarding the leadership of President Zuma.

In April, Zuma avoided impeachment after a ruling by the Constitutional Court; however, Zuma’s government is continued to be criticized and risks investor perception. Rating agencies have stressed on risks to the country’s investment grade sovereign rating due to worries regarding economic growth outlook and delayed economic reform. This threatens economic outlook and implies that the ZAR is expected to underperform in the forecast period, said Lloyds Bank.