Most emerging market currencies appreciated over the last week on a weaker USD as interest rate expectations have been pared back in response to soft US inflation data and the market’s interpretation of a less hawkish Fed. Over the past week, the Brazilian real was the best performing emerging market currencies, out of a list of 24 countries, gaining 1.9% against the USD.

In view of the surprise interest rate cut by the SARB at yesterday’s MPC meeting, the Bank’s stated reasons as well as inflation and growth projections, we anticipate there is a real possibility of another 25bp reduction at the September MPC (see figure 16) . The interest rate cut has had a marginal impact on our currency forecasts (see figure 17).

We expect that the possibility for further interest rate cuts in 2018 will depend on the path of the currency which remains vulnerable to event risks including the sovereign credit rating reviews in November 2017, budget figures produced in October 2017 and February 2018 and outcome of ANC elective conference in December 2017.

The rand is expected to trade in a range of R13.45/USD – R12.45/USD, R15.60/EUR - R14.60/EUR and R17.40/GBP - R16.40/GBP.