The dollar index (DXY) has eased toward 100, with ING maintaining a "slight bias to the 99.20 area this week," further supporting EM currencies.
Owing to an Emerging Market comeback, the Pound to Rand exchange rate has fallen nearly 3.0% in May alone, adding to April’s 2.64% retreat from the all-time peak of 25.47.
Above: GBP/ZAR at daily intervals.
Still, ING cautioned that high-yielders like the rand remain high-risk and sensitive to shifts in global sentiment. "The South African rand (7%) sits in the same category as the high return, high risk Turkish lira (43%)," Turner noted.
Implied yield reflects the difference in interest rates between two currencies (e.g. USD vs. ZAR) as indicated by the forward exchange rate.
It shows the cost or benefit of holding one currency over another via currency forwards or carry trades.
For example, if the ZAR offers higher interest rates than the USD, then buying ZAR and selling USD through a forward contract can generate a positive implied yield — in this case, about 7% annually.