Market Forecast - Sterling Vs. South African Rand 27/07/10
Sterling is still on the back foot here, failing to make any convincing breaks above the 11.75 resistance zone. We’ve been up to that level three times in the last three months, and failed on every occasion. Things looked a little better on Friday after the Pound shot out of the blocks on unexpectedly strong GDP figures. Growth in the second quarter came in at 1.1% compared to the 0.6% expected. That’s good news by any measure, and helped to back up the positive retail sales data released the previous day. The problem is, all this supposed good news is adding weight to the case for a general global recovery, which in turn prompts investors to buy the higher yielding currencies like the Rand. Sterling does benefit from strong domestic data, but when everything settles down the high yielders tend to come out on top. The results of the European bank stress tests were also released on Friday, showing that only seven regional banks failed to make the cut. All UK banks passed. Again, more evidence that the world economy is finding its feet. The Rand rallied yesterday as speculation grew that HSBC would acquire South African firm Nedbank. The deal would require the purchase of a significant tranche of South African Rand, which helped the currency tick higher against other units.
In other news, the South African central bank kept interest rates unchanged at 6.5% last week. The last change was on March 25th when they cut rates by 0.5%. Analysts expect them to remain on hold for some time to come.
The technical outlook is negative. We have recoiled from the 11.75 level and now look set to sell off back to the 11.05 level that marked the late June low. Buyers of the Rand should consider hedging any exposure now.
Market Forecast - Sterling Vs. South African Rand 02/07/10
Markets greeted the UK’s emergency budget with relief last week, bidding up the value of sterling as fears of a credit downgrade receded in light of positive initial comments by ratings agencies and economists. While making cuts that may dent economic activity, the new government also produced a set of modest 5 year growth projections that markets can believe in, and a plan to reduce borrowing from 10% of GDP to 1% over the same period. That the budget was not as bitter a pill as many expected did not dent the general perception that the government is taking action to address the deficit and by doing so putting the pound on more credible footing and preserve the UK’s all important AAA credit rating.
Last week’s Bank of England minutes showed that one of the nine member committee that sets interest rates actually voted to increase rates by 0.25% at the June meeting. Andrew Sentance was alone in wanting to raise rates, but it still gave markets the feeling that rates in the UK may go up in the foreseeable future, and that helped sentiment toward the pound.
The Sterling/Rand rate was given a second shot of adrenalin as world stock markets took a major dive last week, driven lower by fears of a Chinese and US slowdown. A string of negative US data including jobless claims and poor manufacturing numbers meant that US stocks closed at a new 8 month low last night, stoking fears of a deeper correction that could keep investors looking for safe havens over the near term. That sense of investor risk aversion sent the Rand sharply lower over recent days as traders sell high yielding currencies and move money into the Yen and US dollar, a phenomenon known as a “flight to quality”. This reaction has been seen several times over the last few years. Every time the markets hit a major hurdle, the high yielders plunge. However, so far these currencies have always recovered to new highs against both sterling and the US dollar once the fog clears and investors renew their search for a decent yield (The Rand offers 6.5% compared to just 0.25% in the US and 0.5% in the UK).
Also hurting the Rand yesterday was a 4% fall in the gold price. This allowed sterling to capture the key technical resistance just above 11.50, which should open the way to further upside in the short term. The next noteworthy resistance level is 12.05.
----------------------------------------------------------------------------------------------------------
Analysis provided by TorFX
Please follow this link for more South African Rand Currency Forecasts
© Future Currency Forecast.