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USD/ZAR Breaks Higher as SARB Holds Interest Rates

USD/ZAR Breaks Higher as SARB Holds Interest Rates

2014-09-19 19:20:00
Jeremy Wagner, CEWA-M, Kara Dailey,
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Talking Points:

  • Interest Rates Hold Steady at 5.75%
  • GDP Revised Down -0.2%
  • USDZAR Continues in its Bullish Trend Channel

Yesterday, despite interest rate pressures from the advanced economies, the South African Reserve Bank held interest rates at 5.75%. The decision came in response to a weaker economic growth outlook, softer inflation averages (6.2%) and increasing uncertainty surrounding future policy stances as current central bank governor, Gill Marcus, announced that this will be her last Monetary Policy Committee.

While the bank is still considered to be in a rate hike cycle, future interest rate movements will be highly dependent on data which for now calls for maintaining current rates. GDP growth for 2014 was revised down from 1.7% to 1.5% in lieu of a widening current account deficit. While strikes in the platinum industry negatively affected the manufacturing and export sectors, high unemployment (25.5%) kept private sector investment at bay. The gap is not expected to close until early next year.

Furthermore, the Rand is expected to remain sensitive to changes in US monetary policy as higher interest rates and long term treasury yields could draw interest away from emerging market assets and force a sell off of the ZAR.

Under this bleak consumer outlook along with high expectations for increasingly hawkish statements to come from the Federal Reserve in the immediate months, prices have continued to break higher after initially bouncing from a three year trend line last week.

USD/ZAR Breaks Higher as SARB Holds Interest Rates

Graph Created by Jeremy Wagner Using Marketscope 2.0

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