South African Rand Has GBP/ZAR Stuck in 19.57 to 20.08 Range
- Written by: James Skinner
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- GBP/ZAR steadies at 19.57 after March sell-off
- But could struggle to recover much past 20.00
- With GBP suppressed as ZAR remains buoyant
- Fed, BoE policy & commodities key short-term
Image © Adobe Images
The Pound to Rand exchange rate stabilised following its early March sell-off this week but with Sterling remaining soft and its South African counterpart still buoyant, GBP/ZAR could be set to remain within a rough 19.57 to 20.08 range for a short while yet.
South Africa’s Rand remained buoyant close to the 15.00 level against the Dollar through the opening half of the week while Sterling itself found a footing against the U.S. currency following a weeks-long decline, with the net effect leading GBP/ZAR to stabilise near the 19.60 level.
A softer U.S. Dollar and continued rebound in global stock markets may have helped both currencies this week but the Rand has retained an edge over Sterling and many analysts attribute its performance to the elevated level of commodity prices and the appeal of South African government bond yields.
“Heavy commodity exporters have been in favour, but SA bond yields have also elevated as well, about 50bp higher than before the conflict in Eastern Europe and the jump up in commodity prices - 20% higher y/y in March, but easing on the week. Substantial interest rate hikes continue to be anticipated by SA’s markets, also providing rand support,” says Annabel Bishop, chief economist at Investec.
Above: Pound to Rand exchange rate shown at daily intervals with Fibonacci retracements of June 2021 uptrend highlighting possible areas of technical support for Sterling. Click image to enlarge.
- GBP/ZAR reference rates at publication:
Spot: 19.64 - High street bank rates (indicative): 18.95-19.09
- Payment specialist rates (indicative): 19.46-19.50
- Find out about specialist rates, here
- Set up an exchange rate alert, here
GBP/ZAR had fallen heavily to open the March month as European currencies came under pressure as a result of the conflict in Ukraine while commodity-linked counterparts outperformed as prices surged due to concerns about the impact the war could have on supplies of some resources.
But the Pound rose tepidly against the Rand after appearing to find a footing on Monday and Tuesday atop of the 78.6% Fibonacci retracement of its June 2021 uptrend, located around 19.57, which could be set to offer a form of technical support to Sterling over the coming days.
“We remain cautious regarding this bout of ZAR strength. Global factors and the interest rate decisions from the US and UK will be the main events to watch to determine the Rand’s upcoming strength,” says Tim Powell, a director of forex at Sable International.
A lot depends for GBP/ZAR, however, on the market response to pending policy decisions from the Federal Reserve (Fed) and Bank of England (BoE).
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“The consensus view at this time is that the Fed will hike rates by 25 bps for the first time since 2018, although guidance regarding the trajectory thereafter is likely to be lacking, with recent global developments providing cause for concern and uncertainty. Possible trading range for the rand today: 14,9000 to 15,4000,” says Walter de Wet, a fixed income and currency strategist at Nedbank, referring to USD/ZAR.
The Fed is widely expected to take its first major step this Wednesday to withdraw the stimulus provided to the U.S. and global economies throughout the pandemic, by lifting its interest rate, although the Dollar and other currencies could be sensitive to its forecasts and guidance about future policy.
GBP/ZAR often tends to rise and fall alongside the USD/ZAR rate and so would potentially gain from any market response that lifts the Dollar, although the looming policy decision from the Bank of England is this time a possible downside risk for the Pound and GBP/ZAR.
“GBP’s future direction likely depends on whether it pushes back on hawkish market pricing for 2022 rate hikes or instead validates it,” says Shahab Jalinoos, head of FX trading strategy at Credit Suisse, writing in a Wednesday note to clients.
Above: Pound to Rand exchange rate shown at daily intervals with Fibonacci retracements of 2022 downtrend indicating possible areas of technical resistance to any recovery by Sterling. Click image to enlarge.
