ZAR to Strengthen v GBP but USD-ZAR Strength Hits a Milestone

Pound Sterling is forecast to decline back to the lower end of the now well-entrenched 2014 range against the South African Rand.

However, USD/ZAR retains an upside bias as dollar gains have resumed at the start of the new month.

Trade started at 12.13 USD-ZAR on the final session of March and John Cairns at RMB in Johannesburg says immediate resistance at 12.16 is likely to give way to further upside gains quickly enough.

“Moves, nevertheless, remain constrained and it looks as if the market will edge, rather than run, higher. EUR/ZAR looks likely to be more stable — it has jumped up to the 13.15 level but shows no signs of pushing through the key band of resistance that extends from here to 13.23,” says Cairns. 

RMB are confident that USD/ZAR will finish a month above 12.00 for the first time ever and that it will finish higher for a record 12th consecutive quarter.

“Amazing trends indeed, but remember that USD/ZAR gives a false impression of the rand’s actual performance as upside in the last three quarters reflects dollar gains rather than rand losses. In fact, the market is about to end the third consecutive quarter where EUR/ZAR has fallen quite sharply. Overall, on a trade weighted basis, the rand has been flat over the past year,” notes Cairns.

(Please note that all FX quotes here are from the wholesale markets - your bank will affix a spread to the rate to derive profit. However, an independent FX provider will undercut your bank's offer, this can deliver up to 5% more currency in some instances.)

Pound vs South African Rand: Declines Lower Forecast

The GBP to ZAR exchange rate is seen at 18.0231 at the time of writing – close to the middle of the well-established 2014 range.

The below graphic is telling:

As we can see the trading setup behind sterling / rand is neat and ultimately predictable.

Every rejection of 18.400 is inevitably followed by a decline back towards 17.3100.

18.400 was not broken in early March and a grind to the lower end of the grain remains possible.

Support at 17.8727 has often slowed declines but four previous occasions it has failed to prevent the decline to 17.3100.

Of course a bounce higher could occur at this time around – watch the data due out in April.

If the PMI series beat expectations then declines in the pound sterling could be arrested.

However, the bias concerning GBP is uncertain as we enter the electoral period and until a stable government is in place no significant rally in sterling is expected.

British Pound Boosted by GDP Data

Sterling hit a day high of 18.0389 against the ZAR, 1.3750 against the euro which was weakened by news of a German lender needing rescuing, and 1.4790 against the dollar following the UK GDP release.

“Sterling strengthened following stronger-than-expected consumer confidence for March, which hit a 12-year high, and an unexpected upwards revision to Q4 GDP quarterly and annualised growth. Today’s figures show that the economy ended 2014 on a slightly stronger than expected note, with household spending a big contributor to growth, and it continues to be well supported in 2015 by households who are seeing disposable income rising, boosting sentiment," says Andy Scott at HiFX.

Concerns over slowing house price increases and the General Election don’t seem to be fazing consumers who are seeing real term wage growth for the first time recently in the past few years, thanks to significantly lower energy costs.

"This bodes well for the overall picture of the UK economy since individual spending affects so many industries - from coffee houses to DIY chains," says Scott.