Pound to South African Rand Outlook: 18.00 Still Eyed
The lack of South African domestic data and the likelihood of more stimulus from the Bank of England means the GBP/ZAR pair is at risk of falling in the week ahead, unless it is propped up by global factors.
Trading at 18.4780 at the time of writing, for GBP/ZAR, the main event in the coming week is Thursday’s Bank of England (BOE) rate meeting.
The BoE is expected to release a major new stimulus programme to help support the economy after the damage caused by Brexit.
Stimulus tends to increase the supply of money but this reduces its individual unit value, therefore the probability is that on Thursday GBP/ZAR will fall.
The South African Rand could find some domestically-inspired interest on the local government elections due mid-week.
Analysts believe that the ruling ANC could lose the Nelson Mandela Bay metro, while maintaining dominance in the key Johannesburg and Ekurhuleni areas.
At worst, a loss of Tshwane could happen.
"So you are likely to wake up on Thursday with nothing fundamentally different in our politics. But of course, we all remember how analysts, odds and polls got Brexit wrong, so just keep one eye open," notes John Cairns at RMB.
However, the Rand is expected to remain highly sensitive to global risk trends, so a change in global risk appetite is most likely to impact the currency.
J P Morgan’s John Normand has argued he sees commodities such as crude oil, iron ore and other industrial metals staying “soft” in the near-term and this potentially weighing on commodity currencies like ZAR; and this may well be a factor depending on how commodities track.
Last week the Rand rose after the Bank of Japan (BOJ) refrained from unleashing a massive stimulus bazooka, limiting their action to only increasing their purchases of ETFs.
“Much of the rand’s impetus will be gathered from global happenings, with little to sway the unit locally this week. Manufacturing PMI for July is expected to show some weakness after a short-lived rebound in 2Q16, which was supported by pre-emptive production ahead of strike season," says RMB’s Nema Ramkhelawan-Bhana.
Technical Outlook - 18.0000 still eyed
From a chart perspective there is little change in the GBP/ZAR.
The pair continues to remain in a dominant down-trend from the May 23.00 highs, which is still intact.
The down-trend reached new lows of 18.2100 on Friday before rebounding, however, a break below these lows would see the pair fall to the next target at 18.0000.
Latest Pound / SA Rand Exchange Rates
  | Live: 22.6076▼ -0.19%12 Month Best:25.4721 |
*Your Bank's Retail Rate
| 21.839 - 21.9294 |
**Independent Specialist | 22.2911 - 22.3815 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
The lack of bearish momentum after the break lower, however, could indicate downside may be stunted, so we remain marginally bearish, but still bearish nevertheless.
The S1 monthly pivot provides a tough support level at 17.8900 which is likely to provide a floor to any deeper losses, as prices commonly stall, bounce or reverse at monthly pivots.
