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Pound-to-South African Rand Rate: Week Ahead Forecast

Reports that President Zuma is on his way out could be supportive of the Rand whilst charts back up a Rand-positive outlook by showing marginal gains following a breakdown from a rising channel.

The technical outlook for the Pound-to-South African Rand exchange rate (GBP/ZAR) has not changed very much since our last forecast.

Our studies of the pair's charts reveal the exchange rate to be in a short-term downtrend following the election of Cyril Ramaphosa as the new leader of the ANC which ultimatley crowns him the next President of South Africa. 

We believe the trend that favours the Rand is likely to continue.

GBP/ZAR has fallen through a trendline (red line) on the weekly chart (see below) and has already fallen quite far, so the extent to which it could extend is questionable now:

GBP to ZAR

Usually, exchange rates fall an equal distance below a trendline ('b') as they did in the move down to the trendline immediately prior to the break ('a').

This seems to indicate the pair could fall a little further to a target at about the 16.00 which also happens to be the level of the major June lows.

We would seek confirmation for a continuation lower by registering a break below the 16.43 lows, with a downside target at 16.05.

 

Zuma may be Gone Before End of Year

Recent gains in the Rand have come partly due to the expected departure of President Zuma who has become toxic for the currency.

His final departure as President will probably cause further volatility and may come about before the end of the year.

Steps have already been put into motion to impeach Zuma according to a recent statement from the South African Parliament, which said the parliamentary subcommittee on assembly rules had already met to deliberate whether to invoke section 89(1) and impeach Zuma.

Also according to tweets from opposition party EFF leader Julius Malema, Zuma would be out of his office before the "end of the year".

The sooner Zuma makes way for Ramaphosa the better for the Rand, suggesting there is substantial upside potential in the currency.


Credit Ratings

A highly risky event on the calendar for the Rand in 2018 is the decision by credit rating Moody's in February, as to whether to downgrade South Africa's credit rating or not.

Another downgrade by Moody's would pull SA's rating into sub-investment grade status - or "junk" grade which would have serious negative implications for the Rand.

The downgrade will make it harder for SA to borrow money with an end result that it will reduce inflows of capital, limiting demand for the Rand.


Relationship with Dollar and Metal Prices

The Rand is negatively correlated to the US Dollar so the widespread negative outlook for the Dollar in 2018, could arguably provide the basis of a positive forecast for the Rand in 2018.

South Africa is a major commodity producer, in particular, it has a lot of metal and precious metal mines. The current rally in metal commodities, due to tighter regulation in China could also benefit the Rand indirectly.

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