• The rand has been in a stubbornly narrow range, with no clear domestic catalysts on the horizon. However, government wage negotiations are ongoing and it could be important to keep an eye on the ANC’s upcoming land summit (21 to 23 April 2018). 
  • SA CPI surprised to the downside, falling to 3.8% yoy vs 4.0% yoy previously. We believe further downside risks to inflation are now limited. Should there be further disinflationary pressures in the economy, then we could see one more rate cut later this year. This would then imply a lower carry-return for the rand. 
  • Emerging market FX, as a whole, has been relatively resilient, despite the escalating situation in Syria and the trade frictions between the U.S and China. That said, we still believe that a slowdown in global growth (as a result of protectionist trade policies between the US and China) combined with global central banks slowing down their quantitative easing programmes, will likely have an overwhelming influence on the rand. Notably, the IMF’s latest World Economic Outlook report highlights this risk too: “The prospect of trade restrictions and counter-restrictions threatens to undermine confidence and derail growth prematurely”. 
  •  Today we take a closer look at the market positioning (CFTC data) of emerging market currencies and other risk assets. We believe that positioning in the current growth ‘narrative’ is stretched, and deserves more attention. When positions are as large as they are currently, the reversal can be violent. 
  • Our six-month and 12-month target ranges for the USDZAR remain unchanged at R12.40 and R13.00 respectively.We believe there is too much complacency in risk assets, given our outlook for the global economy. 
  • Short-term, keep an eye on support at R11.94 and resistance at R12.22 (see our latest Technical Strategy Note of 16 April 2018 for a more detailed technical view on the currency).