How the South African Rand (ZAR) Should Trade in ‘Brexit Week’
- Written by: Gary Howes
The British pound and South African rand are both outperforming at the start of the new week as markets prepare for a Remain vote to carry the day in Thursday’s UK referendum on EU membership.
The US dollar is under heavy pressure while the rand and pound are advancing as the shift in Brexit polls, showing a loss of momentum for the Leave camp, helped risk assets.
USD/ZAR is testing 15.00 while the GBP/ZAR exchange rate is testing 21.79.
“It’s all about Brexit this week — even Yellen’s semi-annual address to Congress will get overlooked,” says John Cairns at RMB in Johannesburg. “Odds are for a rand-favourable Remain vote.”
RMB note that of late the rand has started to swing aggressively with each bit of news on Brexit. For now its risk-on as two of three weekend polls favoured the “remain” camp.
“Expect ongoing sharp two-way rand moves this week as markets swing with the Brexit polls, with at least a 50 cents range between now and Thursday, followed by a decisive move one way or another when the results come out early Friday. Odds are for a rand-positive Remain vote,” says Cairns.
Bookmakers remain convinced there will be no exit with odds of such an event continuing to hover around 30%.
RMB warn that a Leave would have a much bigger result with the bank forecasting it would push USD/ZAR up by 3%-5% as risk aversion spikes.
GBP/ZAR would go the other way from USD/ZAR, pushing higher on a “remain” and falling on a Leave.
Latest Pound / SA Rand Exchange Rates
  | Live: 22.6363▼ -0.07%12 Month Best:25.4721 |
*Your Bank's Retail Rate
| 21.8667 - 21.9572 |
**Independent Specialist | 22.3194 - 22.41 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
RMB expect EUR/ZAR to trade in the same direction as USD/ZAR, although not moving to quite the same extent.
Yellen’s semi-annual address to Congress, usually a highlight of the annual market calendar, is likely to be overlooked.
Not only is the speech overshadowed by the Brexit vote, but it also comes less than a week after the Fed meeting and there is simply nothing new to say.
With regards to domestic data releases this week watch South African inflation data for May.
On the global front, it is the provisional PMI figures from Europe and China that should dominate, although these will be out just as UK polling stations get going.
