HSBC sees “no fundamental reason” for further weakness in South African rand
- USD / ZAR approaches low of 15.70 to 16.36 range
- Going Below 15.70 Could Test Dollar Buyers’ Nerves
- But drop is limited as Fed considers anticipated rate hike
- And moderate SA inflation keeps SARB slowing
- Latest HSBC Estimates Suggest ZAR Is Correctly Priced
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A treble in daily gains helped make the South African currency the best performing of the major developed and emerging markets for the week.
The South African rand rallied throughout the second half of the week, pushing the USD / ZAR rate down from its December range of 15.70 to 16.36, while pushing the pound rate down. / rand around 21.00.
The Rand looked set to revisit November 2021 lows, but the Federal Reserve’s policy move on Wednesday was followed by three successive days of gains.
âThe emergence of the Omicron variant amid a strong generalized US dollar weighed on the ZAR. The new variant brings higher economic uncertainties and the Fed tightening is potentially unfavorable to the ZAR. However, we believe that the recent weakness of the ZAR has already reflected these risks, âsaid Murat Toprak, CEEMEA FX strategist at HSBC.
âOur valuation metrics suggest that the ZAR is still aligned with its fundamentals. A smaller current account surplus was partly reflected by the recent significant rise in the USD-ZAR. Therefore, we do not see a fundamental reason for further weakness in the ZAR, âToprak said following a review of HSBC’s Rand forecast this week.
Above: USD / ZAR displayed at weekly intervals alongside GBP / ZAR and with Fibonacci retracements from the June rally indicating likely support areas.
- GBP / ZAR reference rate at publication:
- High bank rates (indicative): 20.31-20.46
- Specialist payment rate (indicative): 20.86-20.95
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The rand’s nascent rebound was sustained following data on Thursday showing South African inflation pressures remained subdued in November, with the core inflation rate remaining just 30 basis points of the three to six low for hundred. target band.
âCore inflation edged up but remained relatively subdued at 3.3% year-on-year, reflecting the effects of moderate domestic demand pressures,â said Lara Hodes, economist at Investec.
This is one of the reasons the South African Reserve Bank (SARB) has been slow to raise its interest rate and may continue to fall behind as other central banks in developed and emerging markets normalize their monetary policies.
The SARB raised its cash rate from last year’s low of 3.5% to 3.75% in November and said its quarterly projection model called for a further hike in interest rates before the end of the year. the year, followed by a 25 basis point increase in the cash rate in each quarter of 2022, 2023 and 2024.
“The central bank continues to be cautious as it has entered a timely rate hike cycle, in our view. The SARB does not need to be aggressive (HSBC economics is forecasting a key rate at 5.00% at the end of 2022 against 3.75% currently) because inflation is expected to remain within the target range of 3 to 6%. This is an important difference with other CEEMEA countries where inflation is well above central bank targets, âHSBC’s Toprak said.
GBP / EUR Forecast 2021
Period: From the second quarter of 2021
GBP / USD Forecast 2021
Period: Q2 2021
The Rand’s timid rally also comes against a backdrop of mixed dollar performance, even after the Fed’s decision on Wednesday to end its quantitative easing program at a faster pace and prepare to hike interest rates from the second quarter of 2022.
The Fed’s latest forecast implied it could hike interest rates up to three times next year, raising the fed funds rate to between 0.75% and 1%, although financial markets have stopped. take this adjustment scale into account.
This is an additional potential strain on the rand in its recovery from late November lows, which has already seen dollar buyers around the 15.70 level once before in December.
This coincides with the 23.8% Fibonacci retracement of the USD / ZAR’s five-month uptrend going back to June and when the Fed began to signal that its monetary policy was starting to shift in a less favorable direction. .
“The 15.70 – 16.36 area is the trading range. Our bias remains to buy $ on the lows. On the franchise front, we have seen the dollar sell by leveraged names,” Credit Suisse trader Yuliya Kryzhanovska said in a comment Wednesday at the trading desk.
Above: USD / ZAR displayed at weekly intervals alongside GBP / ZAR and with Fall 2020 Fibonacci retracements indicating likely areas of resistance.