South African Rand Pushing GBP/ZAR toward 19.75

• GBP/ZAR could reach 19.75 if USD/ZAR hits 15.00
• Amid global market rally & energy price correction
• ZAR rallying strongly as GBP lags in risk recovery
• Ukraine ceasefire cited; more negotiations ahead
• Risk of renewed conflict & market reversals high

Image © Pound Sterling Live

The South African Rand rallied strongly during the mid-week session, pushing the GBP/ZAR below the 20.0 handle for the first time since October and paving the way for its multi-month decline to extend down to 19.75 over the coming days, although the risk of a sharp reversal could be high.

South Africa’s Rand rose almost a full percent against the Pound, Dollar and other currencies on Wednesday as stock markets rallied across the globe and energy prices tumbled alongside perceived safe-haven assets including gold as well as some currencies.

“One explanation could be that hopes are growing for a diplomatic way out of the conflict. Ukraine president Zelensky no longer insists on NATO membership and said he is open to ‘compromise' on the status of Luhansk and Donetsk,” says Kenneth Broux, a strategist at Societe Generale.

The Pound-Rand exchange rate had already edged below 20.0 on Tuesday although it made a break for even lower ground with gusto in the mid-week session as Sterling lagged in the global market recovery while the all-important and influential USD/ZAR made beeline for the 15.0 handle.

Above: USD/ZAR shown at daily intervals with Fibonacci retracements of December decline indicating likely areas of technical resistance, shown alongside selected moving-averages and GBP/ZAR.

• GBP/ZAR reference rates at publication:
  Spot: 19.75
• High street bank rates (indicative): 19.06-19.20
• Payment specialist rates (indicative): 19.57-19.65
• Find out about specialist rates, here
• Set up an exchange rate alert, here

GBP/ZAR tends to closely reflect the relative performances of the Sterling and the Rand when measured against the U.S. Dollar, and the Rand’s faster rebound has implications for the short-term outlook.

“The market’s ‘risk off’ sentiment has not impacted the ZAR as much, however, volatility has picked up significantly due to this, and it is tied to the swings in the commodities market,” says Tim Powell, a director of forex at Sable International.

Sterling would fall to 19.75 or below over the coming days if USD/ZAR’s nascent decline extends as far as 15.0, and this would be the likely outcome even if in the interim the main Sterling exchange rate GBP/USD also continues to pare back some of its earlier losses.

All of the above would be contingent on Wednesday’s global market rally continuing, however, and there are still plenty of risks that could yet disrupt it.

{wbamp-hide start}

{wbamp-hide end}{wbamp-show start}{wbamp-show end}

“The moves seem to be the result of a better functioning ceasefire along humanitarian evacuation corridors in Ukraine,” says Stephen Gallo, European head of FX strategy at BMO Capital Markets.

The temporary ceasefire in some occupied parts of Ukraine and Thursday’s third round of negotiations set to take place in Belarus were widely cited for the recovery, although global markets had evidently invested more faith in the latter process than Ukraine’s own President Volodymyr Zelensky.

President Zelensky did not mention the discussions in his Wednesday address to the Ukrainian people and instead belligerently rebuked the invading Russian army, expressed gratitude to Poland for its attempt to supply the country’s air force with fresh fighter jets and warned against internal divisions.

“Russian soldiers! You still have a chance to survive. Almost two weeks of our resistance have shown you that we will not give up. Because this is our home. These are our families and children. We will fight until we regain our land and take revenge for all our killed people,” he said, among other things.

Above: GBP/ZAR shown at weekly intervals alongside USD/ZAR.

Meanwhile, the Kremlin confirmed it has authorised the Russian government to compile lists “of products and (or) commodities” to be banned from import and export in response to the almost unprecedented sanctions imposed by G7 countries and the European Union over its invasion of Ukraine.

“The Western response has been substantial, coordinated and committed, while Russia has been unwavering in its objectives for Ukraine. Hope persists for a resolution, but it is not likely going to be easy, or necessarily quick,” says Annabel Bishop, chief economist at Investec.

“Currently a R2.14/litre hike in the petrol price is building for SA, and a R2.71/litre hike in the diesel price, but this is just for the first few days of March, and the petrol price will change in April based on the average rand move in international petroleum and oil product prices,” Bishop also said.

It’s far from assured that Thursday’s peace talks will result in any meaningful progress and any renewed fighting in Ukraine might be likely to call the Rand’s rally to a halt as it would almost inevitably see energy prices resuming along their earlier upward trajectory.

However, the Rand has shown resilience amid the late February and early March increase in oil prices, which may be due to concurrent increases in other commodity prices including those of South Africa’s export commodities.