South African Rand Holds Major Supports as Data Gauntlet Looms
- Written by: James Skinner
-
- USD/ZAR & GBP/ZAR in retreat with USD/EUR
- As Rand recovers major support levels on charts
- But risks remain with global data gauntlet ahead
Image © Adobe Images
The South African Rand tested but then rebounded from important support levels against the U.S. Dollar and Sterling on the charts early this week, and in tandem with a European single currency that had previously traded at parity with the greenback for the first time since December 2002.
South Africa’s Rand came under pressure alongside the Euro and others early this week as the Dollar rose broadly and seemingly in response to a cacophony of market concerns about the global economy.
“The rand is also being afflicted by negative sentiment on both international and domestic events,” says Annabel Bishop, chief economist at Investec.
“Foreigners remain net sellers of SA government bonds this quarter so far (Bloomberg JSE settled data for foreigner purchase, sales of SA bonds) at -R0.1bn, although on two days alone last week -R4.3bn was sold, versus -R3.6bn over the whole of Q2.22,” Bishop said previously on Monday.
Price action had lifted USD/ZAR briefly above 17.0776, which coincides with the 61.8% Fibonacci retracement of the Rand’s recovery from March 2020’s coronavirus-induced losses, while also buoying Sterling above the 50% retracement of its 2022 downtrend around 20.2673.
But the Rand did stage a spirited recovery ahead of the North American open on Tuesday, however, and especially against Sterling with USD/ZAR and GBP/ZAR retreating back below the 17.0776 and 20.2673 levels respectively.
“Although initially there were some good offers around 17,00/17,03, once through, it steadily climbed higher to reach 17,1300 in New York and 17,1500 in Asia,” says Walter de Wett, a fixed income and currency strategist at Nedbank.
The Rand’s rebound coincided with a bounce by the Euro from parity with the Dollar, which one noted FX market middleman says is likely the result of profit-taking by speculative market participants who’ve a “large queue of buy orders” sitting around the one-for-one level.
To the extent that these are able to frustrate the decline of the Euro and associated advance of the Dollar for longer it might be positive for the Rand.
“One should not write off the ZAR, as this is mostly a global move and not fully to be blamed on the issues South Africa is facing,” says Tim Powell, a director of forex at Sable International.
The Rand has tumbled in recent weeks as economic risks at home and abroad have conspired with a stronger Dollar to weigh on South African exchange rates, although the pace of decline has slowed in the most recent days.
“Domestically, severe load shedding has also worried markets over SA’s growth prospects, which in turn risk negatively impacting state finances via revenue generation,” Investec’s Bishop says.
Shortages of mini substations and electrical transformers have hampered maintenance operations and repair work at national electricity monopoly Eskom following a period of troublesome strike action that led to equipment failures at some of the company’s ailing plants.
This has pushed the company to resort to loadshedding, or rolling blackouts of varying intensity for parts of the power grid, which is particularly disruptive for both heavy industry as well as many services businesses.
“We are unable to conduct operations in Tswhane as our technicians are held hostage at the CNC. Communities are urged to refrain from such criminal acts. Such behaviour affects how we deliver service to our customers,” the company said via its Twitter account on Tuesday.
Tuesday’s data comes ahead of a busy period in a global economic calendar that features releases of South African retail sales figures, U.S. inflation numbers for the month of June and a raft of economic data from China.
“The main point is the retail sales data which will be released on Wednesday. We hope to see a positive figure month-on-month, otherwise, it would be ZAR negative,” says Sable International’s Powell.
Wednesday’s U.S. inflation data is notable for its potential to influence Federal Reserve (Fed) interest rate policy and the U.S. Dollar, which can impact all exchange rates both directly and indirectly.
Many economists expect U.S. inflation to rise from 8.6% to 8.8% for the month of July and for the core inflation rate to slip from 6% to 5.7% after energy and food prices are excluded from the goods basket under the microscope.
Those are followed Friday by China’s second quarter GDP and June numbers for industrial production, retail sales and fixed asset investment, which could impact market risk appetite and so currencies like the Rand and Sterling.