The South African Rand is pushing higher against Pound Sterling on Tuesday January 3 with news out of China being the engine for the gains.
China's Caixin manufacturing PMI rose in December at its faster rate in three years.
The PMI read at 51.9, ahead of the forecast for 50.7.
The news is positive for ZAR as improving Chinese activity tends to raise commodity prices, and South Africa is a major commodity exporter.
Importantly, Caixin data focus on smaller and medium-sized firms and confirms the mainland economy, which had been expected to slow, was in fact stabilising.
"A further rise in production at Chinese manufacturers supported the higher PMI reading in December. Notably, the rate of output growth accelerated to a 71-month high, with a number of panelists commenting on stronger underlying demand and new client wins," said Caixin.
More Upside in GBP vs ZAR Possible
Despite the China-inspired jump in the value of the Rand, the outlook against Sterling remains less assured.
A compelling technical reversal pattern has lent an upside bias to the outlook for GBP/ZAR.
GBP/ZAR has already formed a two-bar reversal pattern (see chart below) and risen.
Two bar reversals are a technical structure which occur when a down-day is followed by an up day. he tend to signal short-term reversals in markets.
They tend to signal short-term reversals in markets.
On GBP/ZAR the pattern possibly indicates a reversal of the short-term trend from down to up.
A break above the support and resistance line running along 17.000 would confirm a continuation higher, however, we would want to see a clear move above 1.1705 for confirmation.
The down-sloping trendline from the November highs provides a target at around the 17.2500 level, a breakout above that could lead to a continuation even higher.
Pound To Be Dictated by Supreme Court Decision
For Sterling, the outlook is dependent on the decision of the Supreme Court as to whether to allow the government to trigger Brexit alone or whether to require an act of parliament.
This decision will be taken in January so the news could come at any time.
A decision to require an act of parliament is thought to be positive for the Pound, as it would likely lead to an increased chance of a softer Brexit.
If the government is allowed to trigger it alone it will probably lead to a harder Brexit – although Theresa May’s inclusive remarks over New Year as well as a promise to allow Parliament to see the negotiation plan regardless of what the court says, have reduced concerns of a cliff-edge Brexit.
Data to Watch for the Rand
There is only really one major data release for ZAR in the week ahead, which is a general all-sector PMI conducted by Standard Bank, which is released at 07.15 (GMT) on Thursday, January 5.
Domestic data has failed to materially move ZAR of late therefore we are inclined to keep an eye on global shifts in risk sentiment which is the main engine for moves in ZAR at present.
Data to Watch for the Pound
The main data releases for this week are Manufacturing, Services and Construction PMIs for December. (See coverage here).
The week starts with Manufacturing PMI on Tuesday, January 3 at 9.30, which is forecast to pull-back a basis point to 53.3.
Construction PMI follows on Wednesday, January 4, and is forecast to rise to 53.0 from 52.8.
Services is out on Thursday, January 5, and is forecast to pull-back to 54.7 from 55.2.