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The Fitch ratings upgrade bolsters the rand says Investec's Annabel Bishop, who forecasts the currency to firm over H2.
"Rand gains on Fitch upgrade," the economist says in response to the upshift to BB from BB-, announced on Friday. That's the first Fitch upgrade in 21 years.
"There has been a definite move in the right direction in SA’s credit ratings, the outlook is now stable," says Bishop.
For the currency, the move was supportive, with Bishop observing outperformance against peer Emerging Market names in the wake of the announcement.
Fitch said the move reflects, "South Africa's record of prudent fiscal management and progress on fiscal consolidation, despite weak economic growth and domestic and external shocks."
Despite familiar and persistent headwinds still facing the economy, Fitch said the new ratings reflects "a favourable government debt structure with long maturities and mostly denominated in local currency, strong institutions and a credible monetary policy framework."
"The rand ran stronger to R16.22/USD on the upgrade, and strengthened against the euro and pound too, running stronger on supportive investor sentiment," says Bishop.
The supportive fundamental story runs against the challenging global backdrop posed by higher energy imports owing to the War in the Middle East.
However, the ratings upgrade can make the ZAR a more attractive prospect in the EM basket that confers a degree of protection during Middle East-linked selloffs.
"The rand continues to run volatile this year, albeit at lower extremes than in past risk-off periods which tend to have been more extreme, and has gained recently from the repo hike, now no longer in the bottom tertile off the EM Bloomberg currency ranker," explains Bishop.
Investec forecasts USD/ZAR at 15.90 by year-end (currently at 16.43), EUR/ZAR at 19 (vs. 19.02) and GBP/ZAR at 21.62 (vs. 22.02).
