Range floor at risk as ZAR richens – Societe Generale

Societe Generale analysts flag that USD/ZAR remains in a sideways consolidation but warn that failure to clear the 50‑day moving average could extend the decline toward lower projections. They add that South African fiscal consolidation supports SAGBs, yet stretched ZAR valuations, reduced SARB carry and a bearish 3‑month risk reversal point to mean‑reversion risks for the currency.

Sideways pattern with downside extension risk

“USD/ZAR has evolved within a sideways consolidation after carving out an interim trough near 15.63 last month. Signals of a large up move are yet to emerge. The 50-DMA near 16.25/16.40, which is also the upper limit of recent range, represents an important hurdle near term.”

“Failure to cross this resistance zone may lead to extension in the phase of decline. A break below the recent pivot low at 15.63 could deepen the down move toward the next projections at 15.45/15.30 and 15.00.”

“In South Africa, FinMin Godongwana is anticipated to reaffirm fiscal consolidation thanks to above forecast tax revenues and the improving growth backdrop. The deficit for this year is on track for 4.5% of GDP target. The political alignment lowers fiscal tail risks so a credible debt path should bode well for further gains in SAGBs.”

“For the ZAR, valuations could be a burden to further appreciation. The REER is approaching 113 compared to a 10-year average of 106. Monetary easing by the SARB is chipping away at carry.”

“In FX options the 3-month USD/ZAR risk reversal has widened to roughly 2.67, more bearish than during last year’s tariff-driven volatility. This signals positioning for mean reversion.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)