Pound to South African Rand X-Rate Forecast for this Week

GBP/ZAR shot up from its March lows on fears about the economy after South African president Jacob Zuma replaced his respected finance minister Pravin Gordhan with an inexperienced alternative.

The sharp rise took the exchange rate from the 15s to 17s in a matter of days.

Since then the pair pulled back in a classic three wave a-b-c correction which ended in the second half of April. It then started rising again as the Pound gained an impetus from the announcement of a snap general election in June.

The move higher has now hit tough resistance from the 200-day moving average (MA) at 17.25 which has slowed its ascent.

Large moving averages provide dynamic support and resistance and the 200-day is expected to provide an obstacle to further upside.

Nevertheless, we see the exchange rate probably breaking above it rather than capitulating.

The look-and-feel of the chart strongly suggests a continuation higher rather than a decline and we forecast a move up to the major trendline at about 17.95 eventually.

For confirmation, we would, however, like to preferably see a break above the 17.475 level first.

Data for the Rand

The main driver for the Rand at present is external in nature.

Markets traded with a moderately risk-on tone at the start of the new week after the US Congress last night reached a tentative agreement on spending that should take a government shutdown off the agenda until September.

China’s April official manufacturing PMI came in at 51.2 (consensus 51.7) – the first significant downside surprise for a year.

Domestically, the standout data releases for the currency are Manufacturing PMI at 10.00 GMT, on Wednesday, Business Confidence at 10.30 on Thursday and Vehicle Sales at 12.30 on Tuesday.

Data for the Pound

A new month means fresh data in the form of the trio of UK Purchasing Manager Surveys (PMI) for Manufacturing, Services and Construction.

These are the most timely economic data releases available and will give us a view of how the UK economy performed in April.

Both Manufacturing, on Tuesday at 9.30 BST, and Construction, out on Wednesday at the same time, are forecast to fall by two basis points to 54.0 and 52.0 respectively.

Services, out on Thursday at 9.30, is expected to fall more steeply to 54.5 from 55.0 previously.

The recent downturn in UK economic activity means markets will be watching whether the trend continues with PMIs.

“Markets are looking for a bit of a pull-back in the PMI’s, and we’re just modestly more optimistic on balance,” said TD Securities in a review of the week ahead.

We doubt that disappointment will feed into any sustained pressure on Sterling though as the currency appears to be more concerned with global investor dynamics and domestic politics at present.