Currency Forecast - Sterling Vs. South African Rand 19th December 2008

  Sterling plunged yesterday after new economic data added to the currency's woes.  Among the bad news was a report showing mortgage lending down 51% in November from the previous year. 

 
The technical outlook is deteriorating sharply after yesterday's break of trend support at 15.00.  Further downside toward the next key support at 13.80 looks the likely path in the short term.  Rand buyers should consider covering any requirement here, or placing a stop order to protect against further weakness.
 

Currency Forecast - Sterling Vs. South African Rand16th December 2008

  The South African Reserve Bank cut interest rates by 0.5% last week as lower projected inflation allows room for easing.  Rates now stand at a revised 11.5% making the Rand one of the highest yielding currencies.  Sterling has remained the "pariah" currency over the last few weeks, falling to new all time lows against the Euro for seven consecutive trading days. 

The pound has nevertheless managed to tread water against the Rand as investors priced in more aggressive rate cutting by the SARB next year.  After falling nearly 30% in a few days in October the Rand has stablised as petrol prices fall and investors start to anticipate much lower inflation.  The increase in stability has more than offset any concerns over the lower yield, and in fact the Rand's yield advantage has increased over recent months as other central banks took drastic action to reduce rates.  UK interest rates now stand at 2%, with most analysts expecting a further cut when the Bank of England meet on January 20th.

The technical outlook is unchanged from our last update.  There is trend support around 15.00 and a strong technical barrier at 16.00.  The attempt to trade up to this level in early December was thwarted, so for now we remain range bound.

Currency Forecast - Sterling Vs. South African Rand 28th November 2008

  The Rand is poised for another weekly gain against sterling as global stock markets continue the sharp rebound that began last Friday.  As governments announce financial packages worth over $1bn aimed at easing the recession, investor risk aversion has started to diminish, allowing higher yielding assets to rally.  Inflation slowed for a second month in South Africa, allowing more room for the central bank to cut interest rates by 1% to 11% when it meets on December 11th.  This still leaves the Rand as one of the highest yielding currencies.

  Meanwhile, Sterling remains especially vulnerable as woeful economic data continues to pile up, making further interest rate cuts more likely in the near term.  The Bank of England are meeting again on December 4th.

 
The technical outlook remains negative, but with such a volatile currency, we will probably continue see swings of 3%+ daily for the near term.  Trend support at 15.00 has been working over the last week, and we have stiff technical resistance at 16.00.  This level has presented a constant barrier through November.
 

Currency Forecast - Sterling Vs. South African Rand 3rd November 2008

  Even within the context of recent market volatility, the Rand has been on a roller-coaster ride over the last month, rallying from 15.00 up to 19.00+ and back in under four weeks.  The initial Rand weakness in early October was in line with weakness in other high yielding currencies like the Australian and New Zealand dollars.  Investors tend to sell these currencies as risk aversion rises, so the falls in world stock markets effectively triggered selling of high yielders. 

However, the Rand departed from the crowd on October 15th when it fell by over 15% in one day as selling momentum reached fever pitch.  From deeply oversold levels (above 19 to the pound) the currency started to recover even while stock markets were still testing the lows, and in the last few days as stocks rallied the Rand continued to climb and now trades at similar levels to before the latest credit squeeze emerged in October.

Given the extreme move, it's hard to predict where the Rand will go next, but it will almost certainly be driven by overall attitude to risk and emerging markets.  As long as stock markets continue their rebound, we see the Rand remaining relatively firm, and unlikely to fall back to the levels we saw a few days ago.

Currency Forecast - Sterling Vs. South African Rand 25th September 2008

  The Rand has been sharply weaker as the political uncertainty continues following the resignation of Thabo Mbeki.  Since then 14 members of the cabinet have also resigned, including finance minister Trevor Manuel, but the Rand's losses were stemmed after Manuel said he would still be prepared to serve in a new cabinet.

  In other news, the South African consumer price index rose to 13.6% in August, up from 13% in July, and well above the central bank's 6% target for the seventeenth consecutive month.

 
The Rand has dropped back to the top of our trend channel, which has previously marked a high for the sterling/rand exchange rate.  While the political situation still leaves room for volatility, we are seeing the Rand recover today's early losses, and having struggled to trade higher over the last 48 hours the rate may now drop back within the trend channel.  Buyers of the rand should now consider locking in the recent gains.
 

Currency Forecast - Sterling Vs. South African Rand 22nd September 2008

  The Rand rose sharply toward the end of last week as stock markets rebounded from a tumultuous few days brought about by the collapse of Lehman Brothers and other financial institutions.  High yielding currencies had suffered massive losses as stock markets plunged, but rescue measures announced by the Federal Reserve late last week sparked a recovery, which in turn helped high yielders like the Rand and Australian dollar to recover earlier losses. 

But South Africa's currency was on the back foot again this morning after the resignation of Thabo Mbeki.  The ruling ANC party asked Mbeki to step down after he was implicated in a decision to charge political rival Jacob Zuma with corruption.  Investors are now wary of holding the currency amid the short term uncertainty, though the selling of the Rand has not developed into a rout because it appears that the political process has been orderly and democratic.  The Rand's weakness is therefore not undue when viewed within the context of last week's excessive volatility.

The technical outlook is mixed.  Having reversed sharply from the top of our trend channel last week the Randlooked on course for further strength, but today's price action places a question mark over that outlook.  As long as the political situation remains stable, our view is that last week's financial market turmoil represented a climax of investor panic, which in turn should mark a low for high yielding currencies which typically suffer during periods of risk aversion.  That means we could see a further strengthening of the Rand as financial markets enter a calmer phase.

Currency Forecast - Sterling Vs. South African Rand 5th September 2008

  The Sterling/Rand rate continues to trade within the broad trend channel, bouncing sharply from seven month lows this week after a government report showed the nations trade deficit topped 7% for a fourth consecutive quarter.  Investors have been net sellers of South African stocks and bonds, which account for a large part of South Africa's inward flows. 

 
Meanwhile, sterling has been under pressure recently as sentiment toward the pound hits new lows, not helped by negative economic comments from Alistair Darling over the weekend.  The Bank of England kept interest rates on hold at 5% yesterday, giving sterling some relief, but the overall picture remains negative.  Buyers of the Rand should keep a close eye on the market, as a break below 13.82 (this week's low) would indicate a breach of our trend support, which could trigger further losses for sterling.
 

Currency Forecast - Sterling Vs. South African Rand 22nd August 2008

  The Rand has been firmer this week, helped by a rebound in commodity prices, in particular gold, which accounts for up to 33% of the nations exports in monetary terms.  Gold is seeing its largest weekly gain in several years as investors buy the precious metal as a hedge against inflation.  While stock markets have been edging lower, and inflation fears still abound, there has been enough appetite for risk to help high yielding currencies like the Rand hold their own against a broadly weak pound.  Sterling has suffered severe losses over the last two weeks after a gloomy Bank of England report, and some traders betting on an interest rate cut in the New Year.

 
The technical outlook is negative.  The market continues to trend in a downward sloping channel, and we are seeing "lower highs and lower lows" on the six month chart, the basic building blocks of a down trend.  The 14.50 level is no longer working as support, so we have to look to the early August lows around 14.15 as the next significant support level (based on the interbank rate).  Meanwhile, it would take a break above the 14.95 level to turn the outlook in favour of sterling gains.
 

Currency Forecast - Sterling Vs. South African Rand 12th August 2008

   The Rand strengthened below the key 14.50 level last week, but then fell sharply in response to weakness in gold and platinum prices, which account for a large portion of South Africa's exports.  Another factor hitting the Rand is the sudden strength in the US dollar.  Investors are selling high yielding currencies after signs that interest rates in Australia and New Zealand may be cut over the next few months, diminishing the appeal of the "carry trade".  This is helping to fuel a rally in the US currency, which in turn is attracting funds from other "high yield, high risk" currencies.

 
There appears to be some movement in the Zimbabwe stand off, with Robert Mugabe and Morgan Tsvangirai engaged in power sharing talks.  It's hard to say whether this is having any net impact on the Rand, as any outcome is far from certain at this stage.
 

Currency Forecast - Sterling Vs. South African Rand 30th July 2008

  The Rand strengthened sharply yesterday after a report showed that credit growth in South Africa accelerated to 20.3%, giving the central bank more reason to raise interest rates from already lofty levels.  The high yield is attracting strong flows into the currency, defending it from negative factors.

 
The Rand is now testing the 14.50 level that we noted as key support in last week's update.  A close below here would be another technical blow, opening the way to further losses.  The market reaction here will therefore be crucial in determining short term direction.
 

Currency Forecast - Sterling Vs. South African Rand 24th July 2008

  Sterling rallied yesterday after the release of the July Bank of England minutes which showed division within the interest rate setting monetary policy committee.  One member voted for a rate cut, seven for no change, and one for a rise in rates.  The fact that one member voted in favour of higher rates boosted the pound as markets had been biased towards a possible cut later in the year.  Some of the shine was taken off the pound this morning however after retail sales data indicated a 3.9% fall in high street sales during June.  This was far worse than the 2.5% decline expected by analysts.

 
Looking at the short term trend the Rand is still strengthening, but yesterday's reversal leaves a new support level for sterling at 14.88.  A break below here should see us heading back towards the next key level at 14.50. 
 

Currency Forecast - Sterling Vs. South African Rand 17th July 2008

  The Rand has remained firm over the last week as traders continue to predict a 0.5% rate hike in August.  Despite weak retail sales figures which appear to confirm a deteriorating economic outlook, some investors are still buying the Rand for its high yield compared to other currencies.  Interest rates are currently 12% in South Africa.

 
The technical outlook is still negative for sterling.  Since breaking below the 15.50 support level we have seen ten days of consolidation, but any short term gains have failed to hold.  It would take a close back above 15.50 to improve the outlook, and in the meantime we are advising caution for anyone with Rand requirements.  Ways to reduce the risk of further downside include buying now, or placing a stop order at your "worst acceptable" level to protect against further falls.
 

Currency Forecast - Sterling Vs. South African Rand 9th June 2008

  The Rand has been rallying sharply the last few days as world condemnation of Robert Mugabe grows, leading to increased speculation that African nations will apply pressure for a change of government in Zimbabwe.   Talks of a merger between local mobile phone operator MTN and India's Reliance Communications also helped the Rand firm as traders anticipate a flow money into the Rand as a result of any deal.

 
The market broke below our key support at 15.50 last week, since when the technical outlook has turned negative.  We tested 15.50 from below yesterday and found resistance here, making new lows again this morning.  Our next key support level is 14.89, then the May lows at 14.53.  Rand buyers should consider trading now to avoid further downside, or placing a stop order in the market to minimise the risk of further deterioration.
 

Currency Forecast - Sterling Vs. South African Rand 24th June 2008

  The Rand remains under pressure as negative sentiment continues to weigh on the currency after the recent developments in Zimbabwe.  Any remaining hopes of a fair election were dashed over the weekend with the withdrawal of opposition leader Morgan Tsvangirai from the June 27th presidential run off election.  He is now taking refuge in the Dutch embassy.  The Zimbabwean situation is exacerbating the Rand's weakness along with a more general move away from emerging markets.

 
The technical outlook remains positive for Sterling.  Market action over the last few days appears to represent a pause in the uptrend that began in May.  A close above 15.90 should be enough to break out of the range and head higher.  Clients looking for higher rates should review the situation if we break below support at 15.55.
 

Currency Forecast - Sterling Vs. South African Rand 6th June 2008

  The Rand strengthened over 12% from March to May as rising gold prices and the prospect of a new government in Zimbabwe boosted the currency.  Also helping the Rand were high inflation figures that threatened a further rise in interest rates, which could attract more investors to the currency.  Rates stand at 11.5% now, but are widely expected to rise to 12.5% at next week's central bank meeting.  It was announced on Wednesday that state employees will get a 10.5% wage hike in July to compensate them for rising inflation, making a rate hike inevitable for July. 

Power utility provider Eskom is also expected to gain approval for sweeping price hikes, which will further raise inflation for the third quarter of this year.  So the inflation and interest rate outlooks are supportive of the Rand, but the economic instability is now outweighing the boost of higher rates.  Low growth, the power crisis, and the increasingly volatile situation in Zimbabwe mean that traders are preferring other high yielding currencies, avoiding the excessively volatile Rand. 

South African finance minister Trevor Manuel said this week that the government's 4% growth target is under pressure, and that he was "not losing any sleep" over the the Rand's depreciation against the dollar this year.  This implied acceptance of a weaker currency cannot help the Rand, and falling business confidence is also weighing heavily on the currency.

The technical picture has developed in favour of sterling over the last couple of weeks.  Having found support at 14.50, the market has rallied back toward 15.40, and we have a clear resistance level here.  Yesterday's positive momentum could be the start of a new rally, so we are cautiously optimistic of further upside in the short term.

Currency Forecast - Sterling Vs. South African Rand 21st May 2008

  South Africa's Rand fell sharply yesterday as violence in Johannesburg hit sentiment towards the currency.  The Rand has been strengthening recently on expectations of higher interest rates, but unrest over the weekend has triggered weakness in stock markets and currency alike.  Locals have become increasingly agitated at the level of immigration from neighboring countries including Malawi, Zimbabwe and Mozambique.  At least 19 people were killed, and the South African president is said to be "very concerned".

 
The Rand has snapped the winning streak that began in March.  Clients with Rand requirements should consider placing a stop order beneath the recent lows around 14.50.  Meanwhile, the Rand should remain vulnerable over the next few days.
 

Currency Forecast - Sterling Vs. South African Rand 12th May 2008

  The Rand ended last week in the back foot, giving back some of the recent gains.  Reasons for the weakness include a small decline in gold and forex reserves, and the ongoing situation in Zimbabwe.  A second "run off" election is now on the cards, and given the increase in government sponsored violence over the last two weeks, it is likely that Robert Mugabe will be successful in fixing the outcome.  The Rand had been benefiting at the prospect of a new government in Zimbabwe.

 
The technical outlook is at a major crossroads.  We tested the late February low around 14.72 last week.  It would take a close below here to signal an unraveling of the uptrend that has been in place since January.  For now, the uptrend is still intact, and the recent downside movement looks like a correction when compared with the rapid surging gains we saw in late Feb'/early March.  Clients with Rand requirements should consider placing a stop order below 14.62 (based on the interbank rate) to protect against further downside.
 

Currency Forecast - Sterling Vs. South African Rand 28th April 2008

  The Rand has rallied strongly in recent weeks as the election crisis in Zimbabwe increases the chance of a new regime for the troubled nation.  There have been growing international calls for the disputed election results to be finalized.

  The Rand is also finding favor after data showed rising inflation last week.  Consumer prices rose 10.1% in March, accelerating the recent trend, and producer prices rose 11.8% over the same period.  There is pressure on the central bank to raise interest rates to combat the inflation threat, and it's this prospect that is driving currency flows into the Rand.  Higher interest rates boost the appeal of the currency to international investors.

  The reserve bank has already raised rates nine times over the last 21 months, which leaves interest rates at 11.5%.  Consumer prices can be expected to continue the recent rise if the utility company Eskom Holdings is given the go ahead to hike electricity prices by 61% when it gets the decision from the energy regulator on June 6th.

 
The technical outlook is still positive in the long term.  The recent price action still appears corrective when compared to the sharp rallies (falls in the Rand) earlier this year.  A break below the late Feb' low at 14.72 would be cause for concern however, so Rand buyers should consider trading if we break below here.
 

Currency Forecast - Sterling Vs. South African Rand 18th April 2008

Despite the falls in gold today, the Rand is holding firm as world leaders increase calls for Zimbabwe to release election results.  Increasing international pressure is seen as positive for the Rand as it increases the chances of a change of government.  Hopes of a post Mugabe era have been receding over the last few days, leading to volatility in the Rand. 

On the technical front we have made 3 consecutive intra-day forays above trend resistance, but have so far failed to close above here.  A break above 15.84 would help, and in the meantime 15.14 is the next major support level.  A break below here (based on the interbank rate) would signal further deterioration.

Currency Forecast - Sterling Vs. South African Rand 15th April 2008

  The rand has been creeping back from the five year lows set in March, supported by strong gold prices, and a potential for a change of government in neighboring Zimbabwe.  This last factor is now in considerable doubt as Robert Mugabe is refusing to release election results, and the Rand is reflecting this by falling again early this week.

  Also hindering the South African currency was another weak session in US equity markets overnight.  The Dow Jones index fell 2%, givING Financial Markets a sharp reminder of the heightened volatility we have experienced in recent months.  Volatile markets cause investors to sell risky assets such as the Rand, and other high yielding currencies.  Further weakness in the US stock market, and continued lack of clarity over the elections in Zimbabwe are likely to result in a renewed push higher for the GBP/ZAR rate.

 
The technical outlook also argues for further upside.  The trend is up, and the recent price action looks like a correction. 
 

Currency Forecast - Sterling Vs. South African Rand 3rd April 2008

  The Rand is rising this week despite data showing a moderation in consumer borrowing and spending in response to several interest rate increases by the Reserve Bank in the last year.  The data will lessen pressure on the central bank to raise interest rates at next week's meeting.  South African interest rates stand at 11%, a relatively high level intended to combat rising inflation, which is running at 9.4%, well above the 3%-6% target range.  With strong evidence of a consumer led slowdown, a further rate hike could damage the already fragile economy.

 
Events in Zimbabwe this week are providing a tailwind for the Rand.  An outcome in favour of the opposition could lead to a dramatic improvement in Zimbabwe's economic prospects, boosting trade in the region.  There remains considerable uncertainty over the outcome, so clients with short term Rand requirements may want to lock in the current exchange rate in case of further downside.
 

Currency Forecast - Sterling Vs. South African Rand 12th March 2008

  Yesterday's surprise $200bn measures by the US Federal Reserve to help relieve the pressure on credit markets has caused a sharp reversal in the GBP/ZAR exchange rate.  Investors rushed back into high yielding ("riskier") currencies as stock markets rebounded from the lows.  The short term technical outlook has deteriorated as a result of yesterday's move, so buyers of the Rand may want to fix a rate now in order to lock in the recent gains.

 
A continuation of the stock market rebound is likely to lead to further losses for GBP/ZAR.
 

Currency Forecast - Sterling Vs. South African Rand 10th March 2008

 
The Rand plunged to a new 6 year low against the pound late last week as new data confirmed the weakness of the US economy, prompting a flight from high yielding currencies.  The Australian and New Zealand dollars also weakened, but the Rand is particularly susceptible to bouts of increased risk aversion. 
 

Currency Forecast - Sterling Vs. South African Rand 6th March 2008

  The Rand's slide was halted on Monday after hitting a multi year low above 15.80.  A big reversal on the day left the Rand in positive territory, putting the market into a period of consolidation over the last few days.

  Meanwhile, gold traded above the key $1,000 per ounce mark yesterday, spurred on by production shortages at South Africa's largest mining companies.  The power crisis continues to weigh heavily on the Rand, so in the medium term we still see further downside for the currency.  Monday's temporary reversal is now wearing off, and a close above 15.70 today would be a new closing high, opening the way to a fresh test of the highs and probably beyond.

 
In other news today, the Bank of England kept interest rates on hold at 5.25% as was widely expected.  The ECB also held rates steady at 4%.
 

Currency Forecast - Sterling Vs. South African Rand 15th February 2008

  The power problems in South Africa have been partly patched up as mined re-open and industry starts to recover, but clearly this crisis has revealed deep rooted instability in the power grid, and thus the economy too.  The Rand is still very much on the back foot, although the currency has managed to tread water this week after several weeks of sharp losses.

 
I would not assume that the Rand weakness is over yet.  The chart below shows the market consolidating very close to the highs, which is usually a good indication that new highs are just around the corner.  It would take a break below the February 4th low at 14.3850 to do real damage to this powerful uptrend.  Buyers of the currency have a couple of options available.  Firstly, you may want to consider locking in the current rate, since this is the highest the exchange rate has traded since 2002.  The other option is to place a stop order below the market (ideally below 14.3850) to protect against a Rand recovery, while looking for further upside in the exchange rate over the next few weeks.
 

Currency Forecast - Sterling Vs. South African Rand 7th February 2008

  The Rand remains under intense pressure as the energy crisis in South African rumbles on.  The problems have already caused widespread economic disruption, and the SA Chamber of Commerce warned on Tuesday that the economic slowdown could spiral into recession during 2008. 

 
The technical picture remains extremely positive (for sterling).  The market has now broken to multi year highs, making the largest weekly gain in over three years.  A weekly close above 15.00 would signal scope for further gains, and the next technical resistance is around 17.00.  Clients looking to buy Rand over the next few weeks should strongly consider placing a stop order in the market to protect against any downside, while looking to lock in further gains if the rally continues.
 

Currency Forecast - Sterling Vs. South African Rand 29th January 2008

  The Rand slumped over 3% on Friday as power shortages halted production at the countries largest gold mines, sending gold prices sharply higher, and hitting the Rand as the full extent of South Africa's power problems became apparent. 

  President Thaboo Mbeki has been heavily criticized for years of underinvestment in power generation.  Anger is growing that warnings over the state of the nation's power grid have been repeatedly ignored for the last decade.

  The national emergency caused a massive spike in metal prices, with silver hitting 27 year highs as large parts of the mining industry ground to a halt.  The knock on impact on the economy could be significant, especially since there is no quick fix.  JP Morgan estimate that every week without full power will cost the top five mining companies over $350m.  Job losses will be inevitable if the crisis is not resolved quickly, knocking an already reeling economy. 

 
As far as the technical outlook goes, all bets are off.  Trend resistance has not been overcome yet, and we would recommend that Rand buyers place a stop order below the market to limit the risk of a Rand rally should the power outlook improve.  In the short term however, the Rand should remain highly vulnerable.  
 

Currency Forecast - Sterling Vs. South African Rand 23rd January 2008

 
The dramatic turnaround in stock markets yesterday also helped to swing the high yielding currencies back into favor.  The Rand was trading sharply lower until the US Federal Reserve made a surprise interest rate cut of 0.75%.  As global stock markets recovered their earlier losses, so did some of the worst affected currencies, leaving a strong reversal pattern on today's GBP/ZAR chart.  Yesterday's peak was in line with two previous highs (trend resistance).  Prices surged higher in morning trade only to meet severe resistance and fall back to finish the day in negative territory.  This bearish price behavior could signal a short term top for the GBP/ZAR rate, so clients with ZAR requirements should consider fixing their rate now, or keeping a close watch to protect against further downside from here.  
 

Currency Forecast - Sterling Vs. South African Rand 15th January 2008

  Sterling has been the weakest performing major currency in the last six months, falling around 9% on a trade weighted basis.  Propsects of further interest rate cuts were boosted after the Bank of England held rates steady at 5.5% in January, prompting calls for a cut in February. 

  Meanwhile, the Rand is drawing support from strong commodity prices, in particular gold, which has been pushing at new highs in recent days. 

 
Sterling had been holding up relatively well against the Rand, compared to performance against other currencies recently.  However, this looks set to change following the break of key support at 13.50.  The market is now trading well below this level for only the second time in 18 months.  This could signal a move lower in the exchange rate, and the next major support level is seen around 12.70.  Clients with Rand requirements should consider fixing their rate now to avoid further downside.  
 

Currency Forecast - Sterling Vs. South African Rand 7th January 2008

  Sterling is still struggling to tread water against most currencies, weighed down by expectations of further interest rate cuts in 2008.  The Bank of England meet on Thursday, and analysts see a significant chance of a 0.25% rate cut following mixed data on the economy.  The unanimous vote for the December rate cut also leads in favor of further easing this month.

  Meanwhile the Rand is largely unchanged following the outcome of the ANC leadership vote in December.  The path of the US dollar will be an important factor in the Rand's progress this year.  Talk of another 0.5% rate cut from the Federal Reserve could help boost commodity prices and weaken the dollar (both positive for the Rand), but if the US looks to be heading into a recession, rising risk aversion could disrupt any Rand rally as investors shun risky assets.

 
The market appears to be holding the 13.50 level, a support zone that has worked for the most part over the last 18 months (see today's long term chart).  A close below here could therefore signal a further deterioration in the exchange rate.
 

 

 

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