South African Rand Loses Ground as Economy Seen 'Deteriorating More Rapidly than Thought'

A slow-down in South African economic growth has put pressure on the rand exchange rate complex heading into the final trading session of the week allowing the pound to make up fresh ground.

Data released this week showed economic growth in South Africa slowing to 0.6% (qoq) in the fourth quarter of 2015 and 1.3% for the whole of 2015.

The result fell below the consensus estimate of 0.8% and was a basis point lower than the previous quarter’s 0.7% result.

Trade, mining and construction provided the main sources of growth, whilst agriculture and manufacturing dragged the expansion in the economy down.

“Real growth is now the third slowest in the EM universe; nominal growth, at 5.1% y/y in 2015, is the slowest ever on record!" says John Cairns at RMB, "the weakness plays to our view of lack of demand pull pressures and hence limited need for the SARB to hike rates aggressively."

Another hike at the March meeting is likely in the opinion of RMB but they still think policy can be eased from November this year onwards.

All this does not play well for sentiment towards ZAR. The rand has had a choppy last few weeks as political intrigue has continued to dog the currency.

The finance ministry has once again provided the stage for dramatic political machinations, after Finance Minister Pravin Gordhan was ticked off for attaching one of President Zuma’s allies, the SARS commissioner Tom Moyane.

Initially the currency weakened on fear of more unsettling political changes, however in the end, Gordhan issued to public statement placating tensions which helped the rand to once again recover.

GBP/ZAR Outlook: Sandwiched Between the 200-day and the 50-day MAs

From a technical perspective, the pair has fallen in a broadly three wave pattern from off the January highs.

It recovered after basing on the 24th of February at 21.2079.

The three up day’s which followed were a positive sign for the pair and the 22.68 highs of February 26 will on balance probably be superseded eventually.

This recovery has run into substantial resistance at the monthly pivot at 22.3562.

There is formidable resistance in the 22s from other levels, including the old neckline of a head and shoulders topping pattern and the 50-day MA at roughly 23.0000.

This is likely to make any further gains difficult for the pair.

The 200-day MA stands in the way of a continuation of the fledgling down-trend.

The S1 Monthly Pivot at 20.9542 is also in the way of further losses.

However, a clear break below that level, indicated by a move below 20.9000 would probably confirm a move down to a target at the psychologically significant 20.0000 mark.