The rand was unimpressed by the data and remained above to the USDZAR 14 mark in an EM-friendly environment. ZAR appears slightly overvalued. We now remain MW ZAR in the GBI-EM model portfolio, but risks are rising. The nominal GDP growth is underperforming substantially which together with more pressing issues at SOEs could drive the fiscal deficit to 5.3%-5.6% GDP this year. Global trade tensions have also re-emerged.
We have stayed MW on ZAR and even recommended a USDZAR put spread in April on hopes of global growth recovery but renewed local and external risks are likely to prove challenging.
Finally, ZAR currently screens 3.7% overvalued in our BEER FV model. This is moderate compared to the 8% standard deviation of the model. In terms of the medium-term outlook, JPM’s projections currently point to the overvaluation extending to 5.6% by the end of 2019. This is driven by higher debt/GDP and lower real yield differentials.
While we activate a bullish USDZAR put spread for a potential China/global growth stabilization. Courtesy: JPM
Currency Strength Index: FxWirePro's hourly USD spot index was at 74 (bullish) while articulating at (15:18 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex