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ZAR: Downgrade risk to junk weighing on the rand - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 10, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, notes that the South African rand has been leading other emerging market currencies lower over the last couple of months as the weakening trend has resumed.

    Key Quotes

    “Rand weakness has accelerated after the latest credit rating updates from both S&P and Fitch. S&P announced late last week that they were placing South Africa’s credit rating on negative outlook which is one level above junk status. It reflected building concerns over weaker growth and the risk of a loss of fiscal flexibility.”

    “Fitch has since lowered its credit rating as well to one notch above junk. Building investor concerns that South Africa is on track to be downgraded to junk status have been reinforced further overnight by the announcement that finance Minister Nene has been replaced. The latest negative developments reinforce our bearish outlook for the rand although our forecasts for further weakness are already looking too cautious.”

    “Brazil also received further negative credit rating news overnight when Moody’s placed its credit rating under review for a cut to junk status. Moody’s now believes that a turnaround in Brazil’s economic and fiscal performance appears unlikely in 2016. A second downgrade to junk could lead to renewed selling pressure on the real.”
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