– Rest of 2021 “difficult” for ZAR
– USD / ZAR could go as high as 15.3950
– GBP / ZAR at 20.9520
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- GBP / ZAR reference rate at publication:
- Place: 20.62
- Bank transfer rate (indicative guide): 19.89-20.04
- Specialist transfer rates (indicative): 20.43-20.51
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South African rand “faces tough fourth quarter,” a prominent analyst we follow, a call that, if correct, would allow the pound-rand exchange rate to test August’s highs again .
“South Africa’s volatile rand could take a hit in the last quarter as risk appetite is limited by a number of factors,” said Peter Stoneham, market analyst at Reuters.
Global stock markets, emerging market currencies and some commodity-linked currencies (AUD, NZD) fell on Tuesday as investor sentiment slumped again, exacerbating existing losses in September.
The length of time that this decline extends will be the primary driver of the Rand’s price movement in the days and weeks to come.
China is again at the epicenter as investors move cautiously around declining growth, reduced democracy, regulatory measures and tighter rules on debt, especially borrowing from speculative purposes, ”Stoneham said.
But a growing headache for investors is soaring global fuel and energy prices, which has raised the specter of a prolonged period of high inflation levels.
This in turn has raised fears that central banks will be forced to raise interest rates in order to prevent higher inflation levels from taking hold in the medium term, as the governor of the United Kingdom suggested on Monday. Bank of England, Andrew Bailey.
The risk of doing so is that raising interest rates further dampens growth.
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Investors are therefore looking at a scenario where inflation soars and growth stagnates; could stagflation make a comeback?
Indeed, US Federal Reserve Chairman Jerome Powell reportedly told US senators on Tuesday that he believes inflation will stay high longer than expected.
Powell will offer this expectation as a rationale for signaling last week that a reduction in the Federal Reserve’s quantitative easing program would likely begin in November (declining), with the program now likely to be completed by mid-2022.
“A more hawkish view of the US Federal Reserve’s taper schedule is the other pillar of risk markets and ZAR volatility will only increase as speculation rises on a possible move as early as November,” Stoneham said .
As a result, the yield paid on government and corporate bonds increased.
For the Rand, this offers a mix of negative conditions: South Africa is already very sensitive to rising fuel import costs, so Brent crude again pushing $ 80 / barrel – for the first time since 2018 – will add to economic headwinds.
Rising US bond yields will meanwhile increase the cost of global funding and help the US dollar appreciate, a negative development for emerging market assets such as the rand.
On domestic issues, Stoneham is aware that politics will ring the radar as parties release their manifestos ahead of the November municipal elections – “another factor in risk volatility”.
According to Stoneham’s technical studies, the dollar-rand (USD / ZAR) exchange rate is rising sharply and while corrective action is likely a return to the August 15.3950 high, it looks achievable in October.
The Pound-Rand exchange rate would rise alongside the USD / ZAR and therefore we can set a target for the pair:
Above: GBP / ZAR daily (top) and USD / ZAR daily (bottom).
If the USD / ZAR were to peak at the August high, as Stoneham anticipates, then a similar target is seen for the GBP / ZAR.
As the above shows, the peak would be 20.9520.
Stoneham says, however, that the longer-term picture shows significant recovery potential for the South African rand in 2022 or 2023, “but the rest of 2021 is likely to be difficult.”