BNY’s Geoff Yu highlights that the ongoing slump in precious metals prices is undermining the terms of trade for South Africa and Peru, which is limiting the upside potential for the South African Rand (ZAR) and Peruvian Sol (PEN) even though the carry trade environment remains supportive [1]. The report notes that currencies with significant exposure to precious metals, such as ZAR and PEN, are facing headwinds due to weaker export receipts, particularly as platinum and platinum group metals dominate South African exports, and Peru is the world’s third-largest silver producer with disproportionately large exports compared to China and Mexico [1].
Yu explains that industrial metals and other 'hard assets' are also under pressure from high nominal and real yields, further impacting these currencies [1]. Despite these challenges, the report does not anticipate a shift toward aggressive underperformance for ZAR and PEN. Institutional reforms and policy shifts, such as South Africa’s inflation mandate and central bank resilience, are cited as factors that could prevent a more severe decline [1].
For Peru, upcoming policy changes are described as more business-friendly and U.S.-aligned, which could help asset performance mirror recent gains seen in Colombia [1]. The overall outlook suggests continued pressure from falling precious metals prices, but with mitigating factors that may limit the downside for these currencies [1].
CONCLUSION
The South African Rand and Peruvian Sol are facing ongoing pressure from declining precious metals prices, which is negatively impacting their terms of trade and currency performance. However, institutional reforms and policy shifts in both countries may help prevent aggressive underperformance, offering some resilience in the face of these headwinds. Market sentiment remains cautious, with medium impact expected as investors monitor further developments.