Pound-Rand Hurtles towards 20.00

- ZAR on the front foot
- GBP/ZAR could break below 20.00 imminently
- EUR/ZAR and USD/ZAR forecasts from Commerzbank
- One analyst says ZAR strength to ultimately reverse again


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  • GBP/ZAR spot at publication: 20.07
  • Bank transfer rates (indicative guide): 19.36-19.50
  • FX transfer specialist rates (indicative): 18.30-19.00
  • More information on securing specialist rates here.

The South African Rand strengthened to its strongest level against the U.S. Dollar and approached a key marker against the Euro at the start of the new week, driven by a boost to investor sentiment that has in turn aided international interest in South African assets.

Demand for the Rand rose as global markets retained their bullish 'risk on' theme that has characterised February, with investors searching out high-yielding assets which include those in emerging markets such South Africa.

"Reflation is still the dominant financial market theme supported by; the ongoing vaccine rollout, more U.S. fiscal support in the pipeline and ultra‑loose global monetary policy settings," says Elias Haddad, Senior Currency Strategist at CBA.

The global economic recovery is expected to step up a gear in 2021 as the covid-19 pandemic fades, leaving South Africa's economy poised for a comeback. "South Africa appears to have weathered the worst in the second wave of the pandemic. Confidence in global markets is supporting the rand," says Elisabeth Andreae, FX and EM Analyst at Commerzbank.

The Rand will likely find support as international investors buy up South African government and corporate debt - which offer superior, albeit riskier, returns to similar assets in the developed world.

Analysts at NedBank say South Africa should attract interest this week as some of its big-name stocks report earnings.

"Commodities will take centre stage this week as strong earnings are expected from the mega-miners. EM risk-on sentiment should continue to see our domestic names outperform," says Research Analyst Reezwana Sumad at NedBank.

China remains the global engine for commodity demand, with a huge stimulus programme ensuring the country recorded positive growth in 2020 despite being the originator of the covid-19 virus.

The Rand could benefit should a broader global recovery accentuate the rise in commodity prices driven by China, thereby underpinning South Africa's improving terms of trade.

The Pound-to-Rand exchange rate's decline meant it was back to testing the psychologically significant 20.00 area, and a break below 20.00 looks likely ahead of a retest of the December 21 low at 19.42.


The Dollar-to-Rand exchange rate has meanwhile broken down to its lowest levels since January 27, 2020 having quoted as low as 14.41 on Monday.

"USD/ZAR is in one year lows. It has reached the 200 week moving average at 14.48. The 55 week moving average lies at 14.3769. Below here lies the 2011-2021 uptrend line at 13.7993," says Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank.

The Euro-to-Rand exchange rate also felt the pressure of of ZAR appreciation and extended its almost uninterrupted February decline and quoted at 17.52.

"EUR/ZAR has eroded the December low at 17.7322. It is in 11 month lows and we look for losses to the 50% retracement at 17.1685 of the entire move up from 2017. The August 2019 high is found ahead of here at 17.3134. Longer term we would allow for losses to the 200 week ma at 16.6555," says Jones.

Peter Stoneham, a Reuters market analyst says the Rand's rally versus the broadly weaker U.S. dollar "is beginning to show significant potential" from a technical viewpoint.

"USD/ZAR has dipped under the 200-week moving average, and a close below the 14.4823 line would be significant and extremely bearish. February 2019 was the last time the market closed below the long-term average," says Stoneham.

The technical analyst is eyeing the potential for a full retracement of the 13.9320 to 19.3590 rally,, seen between Jan. 2 and Apr. 6, 2020, as the COVID-19 pandemic took hold, as being now possible.

While technical targets suggest further ZAR appreciation is possible, fundamental strategists at Commerzbank warn that they are sticking to an assumption that the Rand is ultimately likely to come back under upward pressure at some point in coming weeks.

"Due to the fragile economy and significant fiscal risks, we see limited potential for ZAR recovery from the second half of 2021. The rand remains vulnerable to global risks," says Andreae.

According to the analyst, reasons to remain cautious of the South African currency are the mutated corona virus and only slow progress in vaccination which are jeopardising the economic recovery.

In addition, persistent bottlenecks in the power supply will remain a headwind for the economy and its currency says Andreae.

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