Pound v South African Rand Forecast to Rise to 20.00

The British pound is predicted to continue delivering all-time highs against the South African Rand.

The break higher out of the longer-term range noted between 17.00 and 18.60 has prompted a sustained rally in which momentum opens up interest for a test of 20.00.

From a technical perspective the simple observation that ‘the trend is your friend’ should not be questioned at this time.

A suite of momentum indicators on the chart continue to advocate for further advances but gains could be halted at the psychological resistance point at 20.00.

These round numbers tend to have a real impact on currency moves as traders engage in a 'group think' whereby the attraction of a rounded number for an automated exit merges with the suspicion that everyone else will be looking to book profit at that point.

Keep in mind that in this report all FX rates reference the spot, or inter-bank, which will suffer a cut by your bank when conducting international payments.

This ‘spread’ is how profit is derived on delivering FX. However, a specialist FX payments provider will guarantee to get you closer to the real market rate. This can result in up to 5% more FX being delivered in some instances. Learn more.

Rand Undermined by Commodity Prices

With the technical picture clearly favouring the British pound we consider the fundamental reasons driving this GBP/ZAR rally.

South Africa’s rand remains hurt by falling commodity prices – indeed it has lost more than 5% against the US dollar already this month, reaching its weakest since 2002.

The commodity currency basket, whose membership includes the Canadian, Australian and New Zealand dollars, have taken a punishing as commodity prices slide.

A Chinese stock market melt-down is a symptom of a slowdown in Chinese activity and confidence, this will inevitably have an impact on commodity prices courtesy of China's role in global commodity demand.

The slide in ZAR comes despite South Africa’s interest rate hike last week - a move intended to simultaneously increase demand for the free-falling currency and keep a lid on inflation.

However, on the final day of July we hear that the South African Reserve Bank (SARB) has said it remains sensitive to the weak economy when considering further interest rate increases.

Governor Lesetja Kganyago said at the annual general meeting of the SARB in Pretoria that the Bank, “remains committed to achieving its primary mandate of price stability but will continue to conduct policy in a manner that is sensitive to the fragile state of the economy.”

Is this a sign that the SARB could hold back on further interest rate rises?

If so then we could well see the Rand exchange rate complex embark on another lurch lower.

The Pound Sterling is Hard to Beat

Meanwhile the strength of the pound sterling and US dollar continues to be a dominant theme in global foreign exchange.

Sterling is one of very few currencies to have risen against the US dollar, with the pound also up 1.7% versus the Euro this week.

As we report here, forecasts suggest the GBP will continue to run higher over coming months.

Markets keenly await next week’s ‘mega-BOE-day’ on August 06 where for the first time the UK central bank will release a rate decision, minutes, and deliver its quarterly press conference on the same day.

The pound’s strength reflects expectations that Governor Mark Carney will deliver hawkish interest rate expectations and not attempt to halt the pound’s recent appreciation. 

All decision making at the Bank of England in turn a reaction to an economy that continues to grow at a strong and sustained pace allowing jobs and wages to rise alongside.