Tumbling dollar
The USD is in a bear market. Japan’s yen has defied fates by not caving into interest rate differentials, which would have sent USD/JPY significantly higher than its current 106. Still, political scandal, lingering risk aversion and the expected removal of Abenomics has traders forecasting a stronger yen. Meanwhile, German price-index figures released today suggest the European Central Bank might be too relaxed about inflation. Expectations were that inflation would remain around 1.5% through 2018, but it looks as if the rate might be accelerating. If so, the ECB is likely to end its loose money policy by September, which would spike the EUR/USD. In the home of the USD, worries about the collapse of the North American Free Trade Agreement are declining. Mexico’s peso is the clear winner in Q1, benefitting from higher oil prices,
South African doves
South Africa’s central bank confirmed its dovish policy on Wednesday, lowering its interest rate on repos by 25 basis points to 6.50%, its lowest since January 2016. February’s consumer price index shows that inflation is under control at 4% annualised (January: 4.40%) and is expected to slow in March, as the rand has strengthened since the middle of November 2017 (USD/ZAR: -18.28%). The resignation of President Jacob Zuma (and the stepdown of Zimbabwe’s President Robert Mugabe’s) have boosted the ZAR, thus reducing the cost of imports in the country.
With treasuries gradually nearing investment-grade rankings from all three major rating agencies, South Africa’s economy showing clear signs of improvement. With improved manufacturing and increasing exports in March, we expect GDP growth to head towards the 1.80% range (February: 1.50%). USD/ZAR is trading at 11.82, bouncing back from a 11.62 low earlier this week and continuing its short-term rise toward 11.83.
