Market Forecast - Sterling Vs. South African Rand 19/02/10
The Rand has been taking advantage of a broadly weaker pound, dragging the exchange rate down 2.5% over the last few days. The move has been relatively timid compared to moves in other commodity currencies like the Canadian and Australian dollars, which have both surged to a record high against sterling this morning. That fact alone should put buyers of the Rand on high alert.
The pound took a hit yesterday after data showed that the UK government borrowed a further £4.3 billion in January, a month where tax receipts usually result in a surplus. Analysts were expecting a net influx of cash into government coffers, but a 7.7% fall in tax revenues combined with a 9.7% increase in public spending meant the January account fell into the red for the first time in 17 years. The figures surprised the market, sending sterling lower across the board. Also on the data front the minutes from the last Bank of England meeting were released on Wednesday. All nine members voted to keep QE on hold, although some of the arguments between controlling inflation and protecting growth were finely balanced. This had a neutral impact on sterling as it was largely within the market's expectations.
The technical outlook is negative because the trend is down and we are now approaching the last key support levels ahead of multi year lows. Sterling has certainly been on the back foot lately, but we have yet to break below the January lows. In that event alarm bells would start to sound, and we would be on alert for a further break below the October low at 11.53. That would mark a new four year low .
Market Forecast - Sterling Vs. South African Rand 04/02/10
The sterling/rand foreign exchange rate has deteriorated sharply as the pound suffers a generalised loss of momentum. Most of January's gains were erased in the last week as a raft of negative news flow hit the UK currency. It started with a credit downgrade on the banking sector by ratings agency S&P last week, and a weaker than expected fourth quarter growth figure. A soft house price report from Hometrack on Monday added to the pound's problems.
Underlying the news flow we have a general sense of caution in the market ahead of today's Bank of England meeting, which is widely expected to result in a pause in the Quantitative Easing program that has seen £200bn of new money pumped into the economy. Investors will be looking for a clear "line in the sand" to give comfort in the pound's ability to hold its value in the short/medium term. The latest inflation data showed consumer price inflation racing up to 2.9% in December, well above the BoE's 2% target, leaving the market torn between the weak growth figure (supportive of further QE) and the inflation outlook (which argues against further QE).
The best outcome for sterling would be a clear pause, while keeping the door open for further action if the economic outlook deteriorates significantly. Also troubling the pound are reports that the Tory opinion poll lead is narrowing, creating increased uncertainty over the election outcome.
Meanwhile the Rand has benefitted from a bounce in gold and oil prices over the last few days. Also helping the currency were reports that the South African trade deficit narrowed sharply in 2009, and actually showed a surplus in December as the recession caused a dip in imports. While this is indicative of a weak consumer sector, it has provided some short term relief for the currency. SA pulled out of recession in the third quarter of 2009.
The technical outlook is deteriorating, and it looks like we are heading back towards the recent lows at 11.50 - 11.65. Buyers of the Rand should strongly consider covering any requirement as soon as possible in case this latest slide takes us to new lows.
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Analysis provided by TorFX
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