2019-11-11 • Updated
On November 22, the South African Reserve bank (SARB) made an unexpected decision and raised its interest rate to 6.75% for the first time in almost three years. The decision was welcomed not by everyone, as the South African economic growth came to the near-recessionary stage. What are the motives behind this decision and how does it affect the South African rand?
The recent rate hike by the SARB does not go along with its negative revision of the inflation and GDP growth forecasts. The monetary policy statement by the central bank contained a revised CPI forecast from 4.8% to 4.7% in 2018 and from 5.7% to 5.5% in 2019. In addition, the forecast of the country’s economic growth was lowered from 0.7% to 0.6% in 2018. The forecast of output gap by the SARB was revised from -1.3% to -1.4% in 2018 and from -0.8% to -0.9% in 2019.
At the same time, there is policy uncertainty around the amendment of the country’s Constitution. The scandalous land reform will allow the expropriation of land without compensation. Let’s not forget that the Moody’s nearly downgraded South Africa credit rating to non-investment grade back in October, but postponed its decision. It is currently rated at Baa3, which is the lowest investment grade.
Analysts think the South African central bank is afraid of the economic risks and their effect on the rand. Besides the domestic threats, analysts include the policy by the Federal Reserve, the possibility of the cut of oil production by OPEC+ and the risk-off sentiment among the investors as the negative global factors for the rand. As a result, the rate hike was a protective move towards the currency.
Opinion: Morgan Stanley sees the stronger South African rand in 2019. It thinks the SARB will carry on with its hawkish policy. At the same time, the main focus for the currency will be on the upcoming elections and positive changes to the policy of the country.
However, this kind of rate hike carries risks for the financial market. Many experts suggest that the effect of the rate hike will be short-lived. The higher interest rate will impact the economic growth of the country, which, therefore, may increase the risks of further downgrades in the credit rating of South Africa. It will be destructive for the overall economy and for the currency itself.
Let’s see how USD/ZAR has been trading during the last days.
On the daily chart, rate hike indeed supported the ZAR, as the pair fell below the 13.8 level last week. The first support for the pair is placed at 13.6404. The next support lies close to the 200-day MA at 13.4226. If the South African rand gains strength, the pair will break this level and move towards the next support at 13.4226. If the USD is supported, the pair will rise towards the resistance at 13.8171. The next resistance for the pair is placed at 14.0349.
From the technical side, the parabolic SAR shows a downtrend for the pair, as the dots are situated above the price. Both RSI and MACD do not signal a reversal. RSI is moving sideways, while MACD moves parallel to the signal line.
Conclusion:
The rate hike boosted the South African currency and came at the perfect moment, as the dovish Fed Chair and the low Treasury yields weakened the US Dollar. However, the risks for the Rand to depreciate remain as most of the factors affecting the currency come from the outside and are not linked with the RSAB monetary policy.
Crude oil futures surged on Monday due to disruptions in Russian refining capacity caused by Ukrainian drone strikes and Moscow's decision to cut output to comply with OPEC+ targets. The West Texas Intermediate (WTI) contract for May settled at $81.95 a barrel, up $1.32, while the Brent contract for May settled at $86.57 a barrel, also up $1.32. Russia instructed...
Brent oil is currently on a bullish trend, facing resistance near $84 and supported by the 200-day EMA. Breaking above this level could lead to a climb towards $90. Short-term support is observed around $80, backed by the 50-day EMA. As summer approaches and travel increases, crude oil tends to benefit from seasonal patterns. Despite temporary setbacks, buying...
Bearish Scenario: Sales below 80.00 with TP1: 79.34, TP2: 78.94, TP3: 78.55, and 78.00 Bullish Scenario: Buys above 78.00 (wait for a retracement to the zone) with TP: 79.34 TP2: 80.00, and TP3: 81.00
Jerome H. Powell, the Federal Reserve chair, stated that the central bank can afford to be patient in deciding when to cut interest rates, citing easing inflation and stable economic growth. Powell emphasized the Fed's independence from political influences, particularly relevant as the election season nears. The Fed had raised interest rates to 5.3 ...
Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
Bearish scenario: Sell below 1.0820 / 1.0841... Bullish scenario: Buy above 1.0827...
FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.
Your request is accepted.
A manager will call you shortly.
Next callback request for this phone number
will be available in
If you have an urgent issue please contact us via
Live chat
Internal error. Please try again later
Don’t waste your time – keep track of how NFP affects the US dollar and profit!
|
