USDZAR

31 July 2026, 09:33 UTC Chief Investment Office GWM Investment Research

USDZAR: Positive ZAR outlook intact CIO View: USDZAR Pietro Santin, CIO Emerging Market Strategist, UBS Switzerland AG Tilmann Kolb, Analyst, UBS AG Dubai Branch

• The South African rand traded broadly sideways in recent months CIO Forecast- USDZAR Sideways long term trend before weakening sharply following the latest SARB policy meeting, where the central bank left rates unchanged despite market 31 Jul 26 16.5 PPP*: NA expectations for a hike. Sep 26 16.8 TEEER*: Dec 26 • We continue to expect the rand to strengthen moderately over the 16.5 coming quarters, supported by an improving domestic backdrop, Mar 27 16.2 attractive carry, and historically elevated precious metals prices. Jun 27 16.2 However, heightened geopolitical tensions and concerns over a more Refinitiv, Macrobond, UBS calculation. *Purchasing Power hawkish Fed are likely to remain headwinds for rand appreciation in Parity (PPP) is not a forecast per se, but a long-term the near term. equilibrium value for an exchange rate, calculated by UBS • Accordingly, we keep our quarterly USDZAR forecasts unchanged at 16.80, 16.50, 16.20, and 16.20 through 2Q27. Fundamental influence Curr GDP F CPI F CB target 10Y rate (1) Yield (1) 2026 USD USD 2.1 2.2 Our view and risks 2026 ZAR 1.6 4.3 2027 ZAR 2 3.3 In the near term, elevated geopolitical tensions and concerns about a more hawkish Federal Reserve are likely to remain headwinds for rand Figure 1 – USDZAR appreciation. However, we continue to expect the rand to strengthen over Exchange rate (including forward rates), CIO forecast, the medium term. and volatility range. First, South Africa's domestic backdrop is improving, with ongoing structural reforms supporting growth potential and contributing to better fiscal dynamics, reflected by lower long-term yields and a narrower yield differential versus the US (see Figure 2). Consistent with this trend, Fitch upgraded South Africa's sovereign rating to BB in June, citing prudent fiscal management, continued fiscal consolidation, and progress on structural reforms. Second, the rand remains supported by an attractive interest rate carry advantage relative to the US dollar (of around 3.2% per annum), and while the South African Reserve Bank’s (SARB) recent decision to keep rates unchanged has weighed on the currency, we expect the central bank to turn more hawkish should inflationary pressures intensify further. Finally, elevated precious metals prices—we forecast gold to stay supported Source: Bloomberg, UBS, as of 31 July 2026. above USD 4,000/oz in the coming months—continue to support South Africa's external position.

This report has been prepared by UBS Switzerland AG, UBS AG Dubai Branch. Please see important disclaimers and disclosures that begin on page 4.

Key downside risks to our view include a deterioration in the global Figure 2 - Lower long-term yields and growth outlook, a more hawkish-than-expected Fed, and domestic political a narrower SA-US long-term yield developments. differentials point to an improving Key drivers domestic backdrop 10Y South African swap yields (in absolute terms Global dynamics: Tensions in the Middle East have re-escalated, with oil and relative to US 10Y swap yields) and the USD/ZAR prices hovering around USD 90 per barrel. Continued escalation would exchange rate. likely weigh on risk-sensitive currencies such as the South African rand, while also worsening South Africa's terms of trade given its status as a net energy importer. The Federal Reserve kept its policy rate unchanged at 3.75% in July, broadly in line with expectations, though markets are still pricing a two-thirds probability of a rate hike in September. In the aftermath of the meeting, long-term US Treasury yields rose sharply, a dynamic that typically represents a headwind for risk-sensitive currencies such as the rand. Given our expectation that US economic growth should moderate and underlying US inflation soften, we continue to expect the Fed to remain on hold this year, which should ultimately weigh on the US dollar.

Economic outlook: The economic outlook in South Africa has deteriorated Source…