• GBP/ZAR retreats on probe above 21.00
  • Chart resistance obstructs between 21.04 and 21.07
  • With USD/ZAR slippage weighing ahead of SONA
  • Commodities Support ZAR as US CPI Poses Risk

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The attempted rally in the exchange rate between the pound and the rand from the 21.0 handle was frustrated at the start of the new week and could be followed by a slight setback over the next few days if recent price gains commodities continue to drive down the USD/ZAR exchange rate.

Sterling’s foray above 21.0 on Monday came to a halt around the GBP/ZAR 55-day moving average at 21.0466, which is bolstered as a technical resistance level by the 50% Fibonacci retracement of the British Pound’s January decline around 21.0777.

GBP/ZAR peaked before retreating around the same time as the all-important and highly influential USD/ZAR exchange rate, which resumed its 2022 decline on Tuesday after a short-lived rally at the end of the month. last week.

“ZAR’s recent good performance is very much linked to the recovery of its commodity ToT [terms of trade]. We were initially inclined to dismiss the ToT rally as narrowly based on iron ore and coal, but commodity strength has now broadened. Without a solid view of SA’s ToT from current levels and no clear mispricing or positioning signals, we close our UW [underweight] in ZAR,” says Meera Chandan, FX strategist at JP Morgan.

February ZAR daily

Above: GBP/ZAR displayed at daily intervals alongside USD/ZAR. Fibonacci retracements of the January decline indicate likely areas of technical resistance to a GBP/ZAR recovery. The major moving averages point to possible support and resistances for the GBP/ZAR.

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“In the past, we have been very successful at removing extremes from our EM FX Risk Appetite Index via USDZAR, but this measure is currently neutral. ZAR is also largely fair in our FV BEER [fair value] framework. So for now we prefer to stay on the sidelines,” Chandan also said on Monday.

Tuesday’s declines in USD/ZAR and GBP/ZAR continue a New Year’s trend that many analysts attribute to recent gains in commodity prices, and which recently prompted the JP Morgan strategy team to give up betting against the Rand.

“South Africa is a key exporter of commodities, particularly metals such as iron and other minerals, platinum, gold as well as ferro-alloys and coal and agricultural prices have also experienced substantial increases, and South Africa’s exports have therefore been boosted by these price increases,” said Annabel Bishop, chief economist at Investec.

Precious metals like platinum and palladium and industrial metals like iron ore opened the year with strong January increases in price action, which likely had a favorable impact on trade and current account balances. of South Africa while contributing to increased tax revenue for the National Treasury.

  • GBP/ZAR reference rate at publication:
    Spot: 20.94
  • Main street bank rates (indicative): 20.17-20.31
  • Payment specialist rates (indicative): 20.71-20.79
  • Find out about specialist rates here
  • Set up an exchange rate alert, here

These are all generally supportive influences for the rand, which has risen strongly against the dollar so far in 2022, although the greenback itself has seen gains against many other major currencies along the way.

“The recent gain in commodity prices has provided some support for the national currency, but global PMIs have softened across South Africa’s major trading partners, while supply chain disruptions and shortages supply persist, with the rand expected to be constrained for substantial strength at S1.22,” Investec’s Bishop wrote in a Monday note to clients.

The resulting drop in USD/ZAR weighed heavily on the exchange rate between the pound and the rand, which tends to closely mirror the combined performance of USD/ZAR and GBP/USD, although that the pound sterling also gains against many major currencies in response to the Bank of England. (BoE) interest rate outlook.

The Rand’s rebound this week comes ahead of President Cyril Ramaphosa’s State of the Nation address, which will be watched closely by domestic and international investors.

USD to ZAR daily

Above: USD/ZAR displayed at daily intervals alongside the US Dollar Index. Fibonacci retracements of the June 2021 rally indicate likely areas of technical support for USD/ZAR. The major moving averages point to possible support and resistances for USD/ZAR.

“This will be an important message for the people of South Africa and local and offshore investors who will want to assess how the President and his government plan to tackle an increasingly difficult political environment in which the taxman is under pressure, the unemployment is at an all-time high and growth is returning to a flat trend as the effects of the pandemic fade,” says Siobhan Redford, macroeconomist at Rand Merchant Bank.

GBP/ZAR often demonstrates a positive correlation with USD/ZAR and therefore, for this reason, it would likely risk another modest setback this week if USD/ZAR continues to retreat from last week’s highs. .

However, much depends on Wednesday’s US inflation numbers for January and the market‘s reaction to them, as the data could potentially fuel increases in US government bond yields as well as the rising US dollar. .

“The US inflation report this week could lead to greater market volatility. A reading north of 7%, the highest since the early 1980s, is expected,” says Walter de Wet, strategist in fixed income securities and currencies at Nedbank CIB.

“The rand looks vulnerable to further depreciation in the current global environment; the short-term target is around the 15 7000 level,” de Wet warned in a market commentary on Tuesday.