South African Rand Above 23 v British Pound Again, But Forecasts Suggest Limited Weakness
The rand’s boost following last week’s Bank of Japan rate cut, have largely run out.
The ZAR is again on the back-foot in global FX with the pound forcing the GBP to ZAR conversion back above 23.00.
The US dollar has meanwhile forced the USD to ZAR conversion higher to 15.96 and the EUR to ZAR rate is seen back at 17.42.
“Wall Street has set the tone, closing sideways, with gains restricted by the renewed fall in the oil price. Rand outperformance on last week’s SARB hike has also ceased, leaving the local unit to reflect the global malaise,” says a note from Rand Merchant Bank released on Tuesday.
The ZAR and local bonds enjoyed a month-end rally with USDZAR reaching 16.00 and the R186 approaching the 9.00% handle.
“However, given the overbought signals in the local market, we believe that if the bears are going to make a stand, then these handles could act as resistance,’ says Mike Keenan at ABSA.
ABSA have meanwhile communicated that they are forecasting a shift in the rate hike profile from the SARB:
“We think it quite likely that the SARB’s hiking cycle could revert to 25bp increments. In fact, we think that last week’s 50bp hike was a rather special event that signalled not so much a more aggressive hiking cycle in terms of its cumulative quantum, but rather simply a more accelerated hiking cycle, with the same ultimate peak.”
BUT: Charts are Bullish for the Rand
Despite the immeidate-term declines, the technical outlook for GBP/ZAR still remains supportive for the rand.
The pair has broken below an important long-term trend-line.
There has been a throw-back today after negative data and changing sentiment led to a recovery up to the trend-line.
The trend-line will probably provide robust resistance and the exchange rate will probably rotate at the trend-line and then resume its decline, in line with the dominant short-term down-trend.
The down-trend has gained credibility after the progression of peaks and troughs on the daily chart turned bearish.
MACD has moved below its zero-line, signalling a change to a more bearish trend, and the actual breach of the major trend-line was a very negative sign in itself.
Therefore, a break below the 22.5207 would confirm a fall as far as 21.0641 using the height of the move previous to the trend-line break to calculate the extent of the move after the break.
Data Hurts the ZAR
The South African Rand started to fall again on Monday after negative data showed a slow-down in the manufacturing sector.
Manufacturing PMI for the final quarter of 2016 fell to 43.5 from 45.5 previously; a 45.1 result had been expected.
This came following the South African Reserve Bank’s (SARB) bold decision to hike base lending rates by 50 basis points last week.
However, fears that the increase could exacerbate the country’s economic problems could intensify if economic data continues in a similar trend to the lacklustre Manufacturing PMI today.
Nevertheless, data before the Manufacturing release has been quite strong recently, with inflation jumping to 5.2% from 4.8% and Retail Sales roundly beating estimates in November, which is what gave the SARB the confidence to hike rates.
On Monday, however, the rand was further hit as a result of a 2.0% decline in the price of oil after hopes Russia and Saudi Arabia would make a supply-cut to defend the price faded.
Negative data from China meant the week started negatively for commodity currencies in general – including the SA rand.
