The South African has been resilient in battling constant blackouts in the local economy to hold up against major currencies such as the USD. Currently trading at USDZAR 17.23 there is sufficient room for the ZAR to rally on positive news.
With the South African Reserve Bank (SARB) having increased the repo rate by 75bps in 7 consecutive monetary policy committee (MPC) meetings to the current 7% in 2022, 2023 outlook is whether the current interest rate differential between the ZA10Y & US 10yr will widen or narrow. The current market climate suggests the US Federal Reserve Bank (US Fed) is likely to start slowing their rate of interest rate increases to possibly pause around late Q2 given the continued fall in US inflation.
In the case of the SARB, the fight against inflation is still head on as South African inflation reading is outside of the 3 - 6% SARB target range, currently at 7.2% from the last print. This would suggest a possible 50 – 75bps interest rate increase at the next SARB MPC meeting.
Therefore there is a possibility of a widening of the interest rate differential between the ZA10yr & US10yr currently price at 637.2bps. The last previous low of the interest rate differential was last record on February 21 2018 which was priced at 503.3bps. Interest rate differentials are used by traders to spot the next profitable trade especially for a carry trade.
With the South African Reserve Bank (SARB) having increased the repo rate by 75bps in 7 consecutive monetary policy committee (MPC) meetings to the current 7% in 2022, 2023 outlook is whether the current interest rate differential between the ZA10Y & US 10yr will widen or narrow. The current market climate suggests the US Federal Reserve Bank (US Fed) is likely to start slowing their rate of interest rate increases to possibly pause around late Q2 given the continued fall in US inflation.
In the case of the SARB, the fight against inflation is still head on as South African inflation reading is outside of the 3 - 6% SARB target range, currently at 7.2% from the last print. This would suggest a possible 50 – 75bps interest rate increase at the next SARB MPC meeting.
Therefore there is a possibility of a widening of the interest rate differential between the ZA10yr & US10yr currently price at 637.2bps. The last previous low of the interest rate differential was last record on February 21 2018 which was priced at 503.3bps. Interest rate differentials are used by traders to spot the next profitable trade especially for a carry trade.