Market Forecast - Sterling Vs. South African Rand 26/01/10
Having approached the October lows over New Year, the pound has rebounded strongly in January, helped in part by hawkish comments from Bank of England policy maker Andrew Sentance, prompting markets to start bringing forward expectations of a possible interest rate hike in the UK. Sterling's tailwind has been bolstered by talk of a +0.4% figure for fourth quarter GDP, but the figure came in at just 0.1% this morning, confirming that the country pulled out of recession at the end of 2009, but only by the finest of margins. Sterling has lost a cent on the news as disappointment sweeps the market.
The high yielders have been on the back foot this week on reports that China's central bank will raise reserve ratios for several key lenders, effectively tightening monetary policy by reducing lending and raising the interest rates required by lenders. Also weighing on sentiment toward the high yielders is the dramatic stock market sell off seen over the last few days. If that trend continues and develops into panic, we could see severe weakness in currencies like AUD, NZD and the Rand. Buyers of these currencies should therefore be on alert for opportunities. The Rand has also been overshadowed by corrections in commodity markets, especially gold, which accounts for a large proportion of South African exports and has declined 6% this year and 11% from the record highs seen in December.
The technical outlook is mixed. We still have short term positive momentum backing the pound. There is technical resistance at 12.47-63 and then no noteworthy levels until 13.50, the key resistance that scuppered the pound's rally in October. Buyers of the Rand hoping for a continued improvement should strongly consider placing a stop order to protect against a renewed slide. This is especially relevant given the recent rally.
Market Forecast - Sterling Vs. South African Rand 15/01/10
Commodity currencies felt some pressure this week after China moved to stem inflation concerns by raising capital requirements for banks, tightening lending conditions. Commodities sold off in anticipation that the move could dent Chinese demand, and that had an impact on commodity linked units like the Rand.
Meanwhile, sterling rallied on positive December retails sales data, and gained further traction after hawkish comments from BoE policy member Andrew Sentance. Many analysts are now expecting the bank to halt the quantitative easing program in February, which would at least help to ease one of the two major problems facing the pound in the first quarter. The other is the uncertainty surrounding the general election, and that will persist through to late Q2.
The Rand was a strong currency through 2009, but some analysts are now calling for a correction in 2010 due to the countries poor economic and policitcal fundamentals.
Much of the bad news is now reflected in sterling's historically low level, which means markets can be more reactive to positive data than the usual doom and gloom. There's still much work to be done though before we can confidently say we are out of the woods, and the twin clouds of QE and the general election are major hurdles. The minutes of the January BoE meeting will be the first clue as to the current outlook on QE, and could be a serious driver for sterling. They come out next Wednesday.
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