Market Forecast - Sterling Vs. South African Rand 17/09/09
In our recent update we advocated covering any exposure at 12.50. That looks to have been sound advice as the market has now deteriorated towards the 12.00 mark.
Things were starting to look better for Sterling late last week as the latest Bank of England decision reassured investors. The lack of any further quantitative easing ("QE") gave traders a reason to buy the pound for once. Unfortunately that reason was removed this week as Bank of England governor Mervyn King gave another gloomy update in his quarterly inflation report. Labelling the durability of the recovery as "highly uncertain", he indicated that further easing could be in the pipeline. Inflation figures for August were slightly higher than expected, but this failed to offset the comments.
The Rand is still well bid as gold prices continue to soar above the $1,000 an ounce mark. Following this week's inflation report and sterling's reaction, there is nothing to give us any confidence in a near term revival for the pound, do we continue to advocate a cautious approach if you have Rand requirements.
Market Forecast - Sterling Vs. South African Rand 07/09/09
The spectre of further quantitative easing is still hanging over the pound, giving traders a green light to sell the currency. Recent data flow has also been unsupportive, with a small upward revision in second quarter growth (up to - 0.7% from original estimate of -0.8%) being more than offset by better growth data from Europe which showed economic expansion for France and Germany over the same period.
Comparatively speaking that leaves the UK clearly lagging, and that is being reflected in the Sterling/Euro exchange rate. The Rand meanwhile is benefiting from a strong rally in gold prices over the last two days. The precious metal is now testing the key $1,000 per ounce barrier. A sustained break above there could stir more interest in the currency.
In a recent update we noted the relative weakness of the Rand compared to other so called "commodity currencies". That divergence has now corrected, and we are testing the 2009 lows at 12.35. The fact that we've broken below the June/July low at 12.65 is not good news for sterling. A break of 12.35 would cause further damage to the technical outlook. This is one of the most volatile currencies we deal in, and for that reason we are advising clients with Rand requirements to consider covering any exposure here to avoid the risk of further downside.
Market Forecast - Sterling Vs. South African Rand 04/09/09
The Rand has seen a wide departure from the other "high yielders" over the last few weeks. While the Aussie and Kiwi dollars have been pressing higher against an almost static pound, the Rand has plunged by as much as 7% in the last month, ignoring a recovery in oil and commodity prices. Two factors are weighing on the currency. Firstly the pace of economic recovery has been slower than in other nations, with the quarter to June showing a 3% annualised rate of economic contraction.
Manufacturing was down 11% year on year. Secondly, while the Rand still yields considerably more than most other currencies, interest rates are still being cut (the reserve bank has just made a surprise cut to 7%) and may still have some way to go. That is weighing on sentiment and preventing yield investors from buying the currency.
The technical outlook is mixed. There is no clear trend, as we have seen both lower lows, and higher highs over the last few months. The market is obviously in a state of indecision, which makes any prediction riskier than usual. What we can see is that there is strong technical resistance around 13.50. We've been repelled from that level four times in the last three months, so we would advise buyers of the Rand to cover at least half of any requirement now while we are still trading close to recent highs.
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