RAND TALKING POINTS
- Possible short-term pullback on the cards for ZAR bulls.
- SARB rate decision in focus this week.
- Will R17/$ hold as support?
USD/ZAR FUNDAMENTAL BACKDROP
The South African rand[1] has found some respite this morning on the back of a weaker U.S. dollar[2] as money markets revise Fed rate hike expectations lower from 100bps. The week ahead holds several key economic data points for South Africa including inflation and the SARB’s interest rate announcement (see economic calendar below). Inflation has already exceeded the reserve bank’s upper target limit of 6% in May and is expected to climb to 7.2% tomorrow adding to hawkish pressure on SARB to hike 50bps on Thursday. Should inflation data miss expectations I don’t see the SARB being swayed to reduce this 50bps projection alongside an aggressive Federal Reserve. Since the 16.00 upside breakout in late June, inflationary pressures have hurt South African consumers and although hiking rates are not idea, controlling a weakening rand is essential in limiting further inflation downside on the consumer.
Source: DailyFX Economic Calendar[4]
The recent bleak commodity outlook seems to have stalled for now ahead of China’s Loan Prime Rate (LPR) decision tomorrow with the 1-year expected to stay at 3.7% while the 5-year rate which was unexpectedly cut in May to 4.45% from 4.6% may see another cut to stimulate the property sector as mortgage repayments come under threat. Coupling the SARB rate hike expectation with a potential cut by the PBOC could see the rand strengthen against the greenback this week. Locally, loadshedding has somewhat eased giving businesses a slight break from the Stage 6 blackouts earlier this month and should add to rand support.
