Key points:

• The US dollar is heading for a second weekly gain amid trade talk progress, but remains overvalued. Trump’s policies continue to pressure the Fed to pause its Quantitative Tightening programme and cut rates, tilting risks toward further USD correction.

• ZAR’s undervaluation (REER basis) narrows post-April sell-off, with potential for recovery if GNU and fiscal uncertainties resolve. The May 21 Budget will be pivotal for the ZAR’s trajectory.

• South Africa’s Budget must cut wasteful spending to address a R75bn shortfall. A prudent, consensus-driven Budget could drive ZAR below R18.0000/$ by May’s end.

• VIX declines from post-tariff highs, with US-China trade talk optimism boosting risk appetite. However, elevated volatility persists, impacting the ZAR.