Analysis | April 12, 2021

Outlook and forecast: USD/ZAR & GBP/ZAR

The South African Rand has been the strongest of the emerging market currencies this year and has shown strength against a basket of currencies – the market consensus is bullish but we think the good news is priced in and in the short term we will see a correction. In terms of two pairs, we think selling the ZAR offers good risk to reward are USD/ZAR and GBP/ZAR.

The Bullish Case for the Rand But Is The Good News Priced In?

As we have noted in previous posts speculators hold their biggest long position in Commodities ever as they anticipate a strong global recovery. In terms of commodities, they account for roughly one-third of South Africa’s exports and this has underpinned the rand. Last month the central bank kept its interest rate at 3.5% and upgraded growth and inflation forecasts. The bullish news though in our view is discounted and the outlook won’t get better for the ZAR in the short term.

In terms of commodities, the speculative bubble will burst and we are already seeing some weakness in the sector and expect more as the large number of speculators who are long are flushed out on stop. In terms of the optimistic view from the central bank it’s too optimistic in our view.

Also in terms of South Africa Government finances are not looking good after being ravaged by the pandemic and years of state overspending. Fiscal deficits will not get better without reform and we doubt that will happen so we have a market very bullish of the rand but the technicals point to the good news being priced in and a correction v the USD and GBP.

USD/ZAR Technical Analysis

After falling to major support at the 14.50 level we were unable to close below the level and volatility dropped into support which points to exhaustion of selling. We are now breaking higher and expect follow through to the upside to possibly retrace the whole of the March sell-off.

GBP/ZAR Technical Analysis

A similar setup to USD/ZAR – We came down to a major support level 20.00 and while we did close below it for a day we have now re-bounded and expect the GBP just like the USD we think the GBP could retrace the whole March sell-off. Key levels of support and resistance to watch in our view below.




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