At the start of the new trading week Sterling continues to rise versus the South African Rand, reaching a new 2-month high of 17.58.
The weakness behind the SA Rand has been due to radical elements within the government’s ruling party, the ANC, raising the idea of nationalising the central bank.
"Has the situation in South Africa finally caught up with international markets or has there been other factors that have led to the Rand weakness," ask Treasury One in a briefing to clients. "The answer probably is that it's a combination of both, but the probability that the local factors are starting to hurt the Rand a lot more has risen sharply in the past couple of weeks."
Of note, SA Public Protector, Busisiwe Mkhwebane floated, but then withdrew, an idea to change the South African Reserve Bank’s mandate to be more growth-focused rather than currency and inflation-focused.
That idea undermined the Rand, so her decision to drop the proposal might have led a recovery in the currency if it had not been for the radical elements within the government then coming up with a separate idea to nationalise the SARB.
RMB’s John Cairns thinks neither idea is likely to come to anything, and as such the Rand’s weakness may be conditional and short-lived.
“The public protector’s decision to back down on the SARB mandate issue is a positive. It was always unlikely to pass constitutional muster but her decision surely reflects not only the legal issue but also the political pushback. This adds to the view that the ANC’s proposal to nationalise the SARB will also be rejected in December. The SARB’s independence and mandate remain safe — for now,” says Cairns.
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Technical’s Target 17.73 for GBP/ZAR
From a technical perspective, the pair has reached a 2-month high at 17.58 and is therefore in quite a strong short-term uptrend.
There are no signs of technical weakness in recent price activity and the MACD momentum indicator remains strong, and is rising in tandem with price, and corroborating it with strong momentum.
Given the lack of bearish indictors and the fact the pair has also broken above a multi-month trendline, we remain short-term bullish.
We would first want to see confirmation from a break above the 17.58 highs but assuming confirmation were forthcoming, such a move should continue to a target at 17.73, where there is resistance from a previous major high.