USDZAR Higher by ~20% in 2015

10 Eyl 2015

Earlier this week , emerging market currencies whose prosperity is seen tide to global demand, which lately has been highly linked to China, caught a significant but short-lived bid. This came on the back of news out of China that the government would look to continue with large scale projects in order to prevent a worsening downturn in the global economy. The projects that China requires our natural resource intensive and also provide a boost to global risk sentiment and when risk sentiment rises typically emerging market currencies do as well. However, as the week played out, central banks remain uncertain of the economic future despite the trillions of dollars in quantitative easing and equity markets seem unable to hold a bid. All of these macro factors continue to paint an unlikely picture for EM FX appreciation, like the South African Rand.
Even though the South African Rand has lost around 12% to the USD this quarter, some institutions are making noise that the panic is providing great opportunity to buy these currencies at “panic-like” selloff levels. However, while cheap the fear of the currency getting cheaper is valid. Africa’s biggest bank by market value, FirstRand Ltd. recently noted that they expect bad debts on their books to start taking up due to unsecured lending on the personal side and depressed sectors like mining metals and other commodities on the corporate side. This development cause their CEO to note, “We are continually cutting back on our risk appetite.”