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The South African Rand extended a fortnightly losing streak this week, which lifted the GBP/ZAR towards an important level of technical resistance on the charts and risks inviting a higher range to persist in the days and the coming weeks.
The South African rand fell further against its G20 counterparts on Friday as the dollar resumed an earlier rise while equity and commodity markets also faltered after an earlier short-lived rebound.
“Foreign exchange markets remain extremely cautious and liquidity tested as markets await U.S. data releases later today,” said Walter de Wett, fixed income and currency strategist at Nedbank.
The dollar had eased in the previous session, offering the rand and other currencies a momentary respite after stalling against the mid-week milestone when the American Institute of Management Services PMI supply (ISM) fell less than expected for the month of June.
Above: USD/ZAR at weekly intervals with Fibonacci retracements of the 2020 decline indicating possible areas of technical resistance for the dollar and support for the rand, and displayed alongside the US dollar index.
The ISM PMI may have eased market concerns about recession risk in the U.S. and elsewhere, although the relief was fleeting and attention shifted to the release of June’s recession report on Friday. non-agricultural payroll.
“A good performance could cement a 75 basis point rise in July,” de Wett said of the U.S. jobs report on Friday.
The dollar had not benefited before on Thursday when two influential members of the Federal Reserve (Fed) rate-setting committee expressed concern about the trajectory of inflation expectations in the United States and said they were currently supportive another significant increase of 0.75% in interest rates for this month.
Meanwhile, protests over fuel prices and severe load shedding by national electricity monopoly Eskom have continued to disrupt the South African economy and at times in mutually reinforcing ways, potentially explaining the underperformance. continues from a previously resilient Rand.
“Over the next few days, nine production units are expected to be put back into operation, which will further improve production capacity. However, this will still require Eskom to continue to implement load shedding for the foreseeable future until the situation is normalized,” Eskom said on Thursday after warning that power cuts would continue but at a reduced intensity over the weekend.
“Adding to the delays, which is a major concern for Eskom management, are the frequent and increased number of incidents of road closures and protests delaying entry into areas where work needs to be carried out. “Access to our offices is often blocked, employees are sometimes attacked, intimidated and in extreme situations, taken hostage by certain members of the community,” the company said. previously said Wednesday.
Above: Rate of the pound against the rand displayed at daily intervals with Fibonacci retracements of the June 2022 decline indicating possible areas of technical resistance for the pound and support for the rand. Click on the image for a closer inspection.
The Rand’s losses boosted the GBP/ZAR pair sharply, putting the pound on track for its 200-day moving average at 20.22 and the 50% Fibonacci retracement of this year’s downtrend, located around 20.26, by Thursday.
Much of the outlook between the pound and the rand hinges on the trajectory and magnitude of any further rally in USD/ZAR, which will likely be sensitive to US economic data and developments on the ground in South Africa, where manufacturing and mining production figures will be released next week. .
“The United States continues to show a strong resolve to bring inflation down, and with further escalation in U.S. inflation expected in the next print on July 13 for the June numbers,” says Annabel Bishop, chief economist at Investec, which warned that there is a risk of further weakness ahead for the Rand.
“For South Africa, Q3.22 is expected to see inflation accelerating towards 8.0% YoY, with substantial fuel price hikes forecast for July and continued construction in August, while that staple food prices are also accelerating well above CPI inflation, heralding further pressure,” she also said later.
The exchange rate between the pound and the rand tends to always closely reflect the relative performance of the rand and the pound when each is measured against the US dollar, hence its often positive correlation with USD/ZAR and its continued rise towards the 20.26 level on the charts.
But the pound’s gains could at least be tempered by The final Palace of Westminster coup, which led to the resignation of Prime Minister Boris Johnson and almost inevitably means Brexit politics will soon supplant others to consume the country again. This is not good for the economy or the currency.