AED/ZAR Outlook:
Bearish, as the rate is below its recent average and near recent lows.
Key drivers:
• Rate gap: The UAE central bank's strict adherence to its USD peg provides stability compared to South Africa's managing of a more volatile rand.
• Risk/commodities: The recent increase in oil prices benefits the UAE's economy, potentially supporting the Dirham, while volatility in commodity prices can impact the rand negatively.
• Monetary policy adjustments: South Africa's high interest rates to control inflation are enhancing the rand's attractiveness compared to the Dirham.
Range:
The AED/ZAR is expected to drift within its recent range, with potential tests of its lower extremes.
What could change it:
• Upside risk: A significant rise in oil prices could boost the AED's strength against the ZAR.
• Downside risk: Continued high inflation in South Africa may lead to further interest rate hikes, supporting the rand against the Dirham.