South African Rand Tests Support On Charts after Centenary Marred by Declines

• -USD/ZAR testing resistance on charts after steep rally
• -Load shedding, USD, U.S. yields & CNH loss all at play
• -Resistances at 15.0 & 15.15 could support short-term
• -GBP/ZAR higher but may struggle near 19.47 & 19.90
• -SA inflation data and SARB policy implications in focus

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The Rand was testing a cluster of notable technical supportson the charts in midweek session after the South African currency’s centenary anniversary was marred by sharp declines, while its prospects for recovery were unclear and somewhat contingent on the forthcoming release of March inflation data. 

South Africa’s Rand had been the biggest faller within the G20 complex of major currencies in a turbulent start to a holiday-shortened week on Tuesday after slipping more than two percent against the U.S. Dollar and by a similar amount relative to Pound Sterling. 

The Rand’s losses came against an international backdrop that featured losses for many safe-haven currencies, a Dollar rally and further gains for U.S. bond yields while in South African itself, state power utility Eskom had announced the continuation of a severe bout of load shedding on the energy grid. 

“South African Government Bonds endured a tough session yesterday, although it was predictable that this would be the case, given the move in the indicators,” says Walter de Wet, a currency and bond strategist at Nedbank. 

“This, combined with another woeful effort from the electricity utility, which warned of risks of another 100 days of power cuts in the year ahead, and the ongoing situation in the Ukraine, saw the local unit shed its recent gains,” de Wet said in a Wednesday note. 

Above: USD/ZAR shown at daily intervals with Fibonacci retracements of December decline and selected moving-averages indicating possible areas of short and medium-term resistance for the Dollar or support for the Rand. 

Eskom said stage four load shedding would remove 22,500MW of power from the grid through Friday, making for a second week of disrupted energy supply, which inconveniences households and hampers the domestic economy. 

Earlier losses also came alongside those of the influential Chinese Renminbi, which eased lower against the Dollar following an almost two year rally and could potentially be on course for further declines in the months ahead. 

"As a high beta emerging market currency it will be one of the most exposed to higher US yields. But it is also one of the most highly correlated currencies with the Chinese renminbi. Were USD/CNH to start trading up to the 6.50 area, we could see USD/ZAR trading to 15.50," warns Chris Turner, global head of markets and regional head of research for UK & CEE at ING.

The Renminbi is one of the market’s three largest characters and trend changes in either of these can often have ripple effects on other currencies, although it’s not clear whether that was or wasn’t the case on Tuesday.

Today @SAReserveBank
is marking yet another centenary, celebrating 100 years of issuing the country’s banknotes. First banknote was issued on 19 April 1922. Catch SARB's Head of Currency Pearl Kgalegi on @motswedingfm's Tsele le Tsele at 18h45. pic.twitter.com/ccr1kJagvh

— SA Reserve Bank (@SAReserveBank) April 19, 2022

Nonetheless, Tuesday’s losses somewhat marred the 100th anniversary of the Rand and South African Reserve Bank's (SARB) monopoly right of issuance.

“The port operations have been disrupted temporarily, but will likely hurt if prolonged. The majority of exports and imports pass through the Durban port. Two key sectors could be directly affected- agriculture and mining,” says Tatonga Rusike, a Sub-Saharan Africa economist at BofA Global Research, of the costly damage caused by recent flooding in the Kwa-Zulu Natal province.

Rand performance throughout the remainder of the week could in some ways be contingent on the market's reading of March inflation figures, due for release at 10;00 am local time, and whether it's perceived as something that would lead the South African Reserve Bank to continue raising its cash rate later this year.

The SARB lifted its interest rate for a third time since its coronavirus crisis rate cuts back in March, taking the benchmark up to 4.25%, while the bank’s quarterly projection model continued to reccommend “gradual normalisation through to 2024” for the interest rate.

Above: GBP/ZAR shown at daily intervals with Fibonacci retracements of 2022 decline and selected moving-averages indicating possible areas of short and medium-term resistance for Sterling or support for the Rand.