Contrasting currency tales

Currencies of the two biggest economies in Africa have had contrasting fortunes recently, with Nigeria’s official naira exchange rate recently devalued but the South African rand soaring on the back of higher metals prices. Nigerian policymakers have taken a step in the right direction but, while we expect further falls in the naira, the authorities will stop short of the unified and fairly valued exchange rate than many are hoping for. Meanwhile, the star performance of the rand is unlikely to last as we expect most commodity prices to fall back, and that US long-term yields will begin to rise again, putting renewed pressure on EM currencies. In addition, we think the SARB will not tighten policy as quickly as investors now discount, and that concerns about South Africa’s fiscal situation will eventually resurface.