The exchange rate between the British pound and the South African rand could be close to the bottom in the short term
- GBP/ZAR could approach a short-term low
- As USD/ZAR hits a series of supports
- With GDP, Current Account and Industrial Data Coming Soon
Soweto Towers. Image ©Adobe Images
The exchange rate between the pound and the rand fell to its lowest in almost two months at the start of the new week, but could stabilize above the level near 19.27 over the next few days after the South African currency was blocked by a series of key resistance levels against the dollar. on the maps.
The South African rand was one of the best-performing currencies in the G20 basket on Monday behind the Russian ruble after benefiting from a buoyant market for commodity-related currencies and large gains for risky assets like equities.
“The last two sessions last week were plagued by a lack of liquidity and real activity as UK markets closed. US payrolls data showed an increase of 390,000 on an expectation of 317,500. This triggered some price action on the rand, which traded at a high above 15,5000,” says Walter de Wet, fixed income and currency strategist at Nedbank.
“The rand this morning is trading below 15,500 again; the technical support level at 15,4000 remains intact,” de Wet and colleagues said on Monday.
Monday’s declines in USD/ZAR weighed heavily on the exchange rate between the pound and the rand, even as the pound itself pared the widespread losses suffered against many currencies in the previous week.
Above: The exchange rate between the pound and the rand displayed at daily intervals with Fibonacci retracements of the April rally indicating possible areas of short-term technical support for the pound. Click on the image for a closer inspection.
This marks an extension of a rally in the South African rand that has been picking up just past mid-April and early indications of Shanghai heading for a reopening from China’s longest coronavirus-induced shutdown to date.
The potential hitch for the Rand, however, is that with USD/ZAR appearing to rebound from a series of important technical support levels on the charts on Monday, there is now a risk that GBP/ZAR may have hit a low. short-term trough around the 19.27 level.
The Pound to Rand exchange rate is sensitive to USD/ZAR price action and would likely stabilize above the 19.27 level this week unless USD/ZAR is able to push below the group of moving averages and the key Fibonacci retracement supporting it between 15.2573 and 15.3643 in the days ahead.
This could mean that Tuesday’s South African GDP data for the first quarter will have a significant influence on the direction of the Rand in the near term.
“GDP is expected to grow by 1.1% qqsa in the first quarter of 2022, compared to a rise of 1.2% qqsa in Q4.21,” says Lara Hodes, economist at Investec.
Above: South Africa’s economic calendar for the week ahead and market expectations for the results. Source: Investec.
“The domestic manufacturing sector is expected to contract further by -3.6%y/y in April, following the -0.8%y/y decline in March, underpinned by production impediments caused largely by flooding in Kwa-Zulu Natal and increased rotational load shedding.. Similarly, mining production has likely dropped significantly,” Hodes also warned.
South Africa’s GDP data for the latest quarter will be released early Tuesday and comes days ahead of April’s output figures for the manufacturing and mining sectors, all of which will provide clues about the outlook for economic growth and could have an impact on the appetite for the rand.
However, Friday’s U.S. inflation numbers and developments in and around the Chinese economy, which is expected to announce its May import and export numbers on Thursday this week, are likely to be at least as consequential for the rand.
Any deterioration in China’s trade situation or upside surprise in US inflation data would be a potential catalyst for US dollar strength and support for the pound/rand exchange rate.
“The trend in export orders, particularly in Asia, remains weak, underscoring the deteriorating outlook for trade-oriented currencies in the region. Emerging market manufacturing sentiment is likely to struggle further as the growth in developed economies is slowing, the recovery in China remains anemic and price pressures are mounting. The CNY is the most sensitive to swings in its PMI,” said Mitul Kotecha, head of emerging markets strategy at Securities. TD Mobiliar.
Above: USD/ZAR at daily intervals with selected moving averages and Fibonacci retracements of the April rallies indicating possible areas of short-term technical support for the dollar and resistance for the rand, and displayed alongside GBP/ZAR. Click on the image for a closer or more detailed inspection.