Pound to Rand Rate Sidelined on Dollar Softer and SARB Outlook Support

  • GBP/ZAR sidelined in short-term consolidation range
  • Faced with difficulty around 8:20 p.m. but sustained around 7:44 p.m.
  • As USD Loosens, RMB Rebounds, SARB Policy Supports
  • Change in S&P’s credit rating outlook also supporting ZAR

© Lefteris Papaulakis, Adobe Images

The exchange rate between the pound and the rand fell in the opening session of the new week and could remain on the sidelines below its highs of early May, as the South African currency benefits from a favorable political outlook from the bank. central, a weakening of the US dollar and a partial decline. renminbi rebound.

The pound was one of the best-performing G10 currencies on Monday, but couldn’t avoid losing some more ground to the South African rand, which outperformed with domestic and international tailwinds in its sails.

The South African rand outperformed most of its G20 counterparts except the Brazilian real on Monday as the dollar moved away from recent highs and the renminbi slid off its lows in early May, marking a further partial reversal or neutralization of two recent and significant headwinds for the currency.

But the rand also benefited from domestic tailwinds, including an improved outlook for the government’s credit rating from S&P Global Ratings, which moved from neutral to positive after the market closed on Friday.

“This indicates that S&P’s next decision for South Africa will be a credit rating upgrade if factors do not deteriorate, although the agency has about a year to make the decision and may remove the outlook. positive if factors don’t improve,” said Annabel Bishop, chief economist at Investec.

Above: Sterling to Rand exchange rate displayed alongside GBP/USD, USD/ZAR and some moving averages.

While South Africa’s ratings for foreign and local currency debt remained unchanged at ‘BB-/B’ and ‘BB/B’ respectively, the improved outlook suggests a possible inflection point for the perception of the countries, which is potentially a favorable outcome for Rand-denominated assets.

“Faster implementation of economic reforms, accompanied by fiscal consolidation to provide a stable basis for growth, will support faster recovery and higher levels of economic growth in the long term,” the National Treasury said in response to the ad.

The subsequent advance of the rand helped push the USD/ZAR exchange rate back in the direction of its May low around 3:40 p.m. Monday, reinforcing the drop below 4:00 p.m. that followed the South African Reserve Bank’s decision ( SARB) on Thursday to raise its exchange rate by 50 basis points. peak at 4.75%.

The SARB also lifted its assumptions last Thursday on how much it might need to raise borrowing costs further over the next 18 months to ensure South African inflation rates remain within the target range of 3 at 6%, which could also be supporting the Rand.

“The rand continues to trade in positive territory after the SARB rate hike,” said Walter de Wet, currency and bond strategist at Nedbank.

Above: USD/ZAR displayed at daily intervals with selected moving averages.

“The next technical support is around the 15.6000 level. Locally, KZN is again experiencing extreme weather conditions that may cause further infrastructure damage, de Wet and colleagues said Monday.

The exchange rate between the pound and the rand has remained subdued in a range between around 19.40 and just over 20.20 since early April and has come under pressure in this range since the US dollar began to weaken. correct lower at the beginning of last week.

That corrective pressure was bolstered by a partial recovery in the renminbi from its April losses, a recovery that has been building as Shanghai begins a gradual reopening of the ‘lockdown’ and one that was buttressed last Friday but rate cuts mortgage-related interest rates in China.

All of this is positive for South Africa’s largest trading partner economy and could remain a source of support for the rand over the coming days, implying little to no upside in the exchange rate between the pound and the rand.

“This week we will be watching to see if the ZAR can maintain its grip on last week’s gains. There is little meaningful data coming out of South Africa this week, so we expect global factors to be the main catalyst for ZAR moves,” said Tim Powell, forex director at Sable International.

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