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South Africa's Rand underperforms After Reserve Bank Commentary

South Africa's Rand underperforms After Reserve Bank Commentary

2018-07-20 08:54:00
Shaun Murison, CFTe, Technical Strategist
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Rates unchanged but Growth outlook deteriorates

There were no real surprises at the conclusion of the Monetary Policy Committee meeting as the South African Reserve Bank kept lending rates unchanged.

Some key takeaways from the meeting were as follows:

  • Inflation is well within the targeted 3% to 6% range, although the low point of the cycle is believed to be behind us
  • Higher oil prices impact on inflation will be somewhat moderated by lower food price inflation
  • Risks to the inflation outlook have started to materialize, with international events adding upward pressure to the figure
  • The Reserve Bank’s estimates for GDP growth in 2018 has been revised lower, from 1.7% to 1.2%

The Reserve Bank has also said that it believes the rand to be undervalued at present although expects the currency along with its emerging market peers to remain volatile.

The rand weakened on the day (around 1.5% vs the USD) where risk off sentiment saw emerging currencies in general under pressure. The revised GDP estimates from the central bank perhaps provided some of a domestic catalyst for a further under performance of the rand.

Rand – Technical View

South Africa's Rand underperforms After Reserve Bank Commentary

The sharp weakening of the rand yesterday see’s the USD/ZAR breaking out of a short term wedge consolidation, to resume the short term uptrend in line with the longer term uptrend currently in place. The breakout is supported by the Stochastic oscillator moving out of oversold territory.

The near term high at R14.00/$ becomes the favoured initial target from the move, while a close below trend line support at around R13.10/$ would suggest the anticipated move to have failed.

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