- GBP/ZAR may be nearing a short-term bottom
- As USD/ZAR meets series of support supports
- With GDP, current acct & industrial data ahead
Soweto towers. Image © Adobe Images
The Pound to Rand rate fell to its lowest for almost two months early in the new week but could be likely to stabilise above the nearby 19.27 level over the coming days after the South African currency was stalled by a series of key resistance levels against the Dollar on the charts.
South Africa’s Rand was one of the top performing currencies within the G20 basket on Monday behind only the Russian Rouble after benefiting from a buoyant market for commodity-linked currencies and broad gains for risky assets like stocks.
“The final two sessions of last week were plagued by a lack of liquidity and real activity, as the UK markets were closed. US payroll data showed an increase of 390 000 versus an expectation of 317 500. This provided the trigger for some price action in the rand, which traded to a high above 15,5000,” says Walter de Wet, a fixed income and currency strategist at Nedbank.
“The rand this morning is again trading sub-15,5000; the technical support level at 15,4000 remains intact,” de Wet and colleagues said on Monday.
Monday declines in USD/ZAR weighed heavily on the Pound to Rand exchange rate even as Sterling itself pared back widespread losses sustained against many currencies in the prior week.
Above: Pound to Rand exchange rate shown at daily intervals with Fibonacci retracements of April rebound indicating possible areas of short-term technical support for Sterling. Click image for closer inspection.
This marks an extension of a South African Rand rally that dates back to just after the middle of April and first indications of Shanghai heading toward a reopening from China’s longest coronavirus-induced shutdown to date.
The potential rub for the Rand, however, is that with USD/ZAR appearing to bounce from a series of important technical support levels on the charts this Monday, there is now a risk that GBP/ZAR may have reached a short-term bottom around the 19.27 level.
The Pound to Rand exchange rate is sensitive to price action in USD/ZAR and would likely stabilise above the 19.27 level this week unless the USD/ZAR is able to push below the cluster of moving-averages and key Fibonacci retracement propping it up 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 be an important influence on Rand direction in the short-term.
“GDP is forecast to grow by 1.1% qqsa in the first quarter of 2022, versus Q4.21’s 1.2% qqsa rise,” says Lara Hodes, an economist at Investec.
“The domestic manufacturing sector is expected to contract by a further -3.6% y/y in April, following March’s -0.8% y/y decline, underpinned by production hinderances caused largely by the flooding in Kwa-Zulu Natal and heightened rotational load shedding. Similarly mining production is likely to have fallen notably,” Hodes has also warned.
South Africa’s GDP data for last quarter will be released early on Tuesday and comes just days ahead of April production figures for the manufacturing and mining sectors, each and all of which will provide clues on the economic growth outlook and could impact appetite for the Rand.
However, at least as consequential for the Rand is likely to be Friday’s U.S. inflation figures and developments in and around China’s economy, which is set to announce its import and export trade figures for May on Thursday this week.
Any deterioration of the Chinese trade picture or upside surprise in the U.S. inflation data would be a potential catalyst for strength in the U.S. Dollar and a supportive factor for the Pound to Rand exchange rate.
“The trend in export orders, particularly in Asia remains weak, highlighting the worsening prospects for trade orientated currencies in the region. EM manufacturing sentiment is likely to struggle to improve much further as growth in developed economies slows, China's recovery remains lackusture and price pressures intensify. CNY is most sensitive to gyrations in its PMI,” says Mitul Kotecha, head of emerging markets strategy at TD Securities.
Above: USD/ZAR at daily intervals with selected moving-averages and Fibonacci retracements of April rallies indicating possible areas of short-term technical support for the Dollar and resistance for the Rand, and shown alongside GBP/ZAR. Click image for closer or more detailed inspection.