Rand Report- SARB raises rates

The South African Reserve Bank (SARB) increases repo rate by 0.25%

The South African Reserve Bank (SARB) has increased the repurchase rate from 6.50% to 6.75% at the conclusion of the Monetary Policy Committee (MPC) meeting on Thursday. The SARB has substantiated its decision by saying that lending rates in South Africa still remain accommodative. Further rate decisions will continue to be data dependent.

The decision comes despite a downward revision in the outlook for GDP growth and headline inflation. In 2018, economic growth is now expected to be realized at 0.6% (previously estimated at 0.7%) while headline inflation for the year is expected to average at 4.7% (previously estimated to average at 4.8%).

The Rand (USD/ZAR) – Technical View

RR 23112018

The longer-term uptrend for the USD/ZAR (marked with the dotted trend line) has recently been broken to the downside. In the short to medium term, the USD/ZAR currency pair is now breaking down out of the broad sideways range between levels R14/$ and R15/$, highlighted in our previous note (below). The breakout follows the SARB’s decision to increase local lending rates.

The short term declines in the USD/ZAR currency pair (dollar weakness / rand strength) now target the next levels of support at R13.50/$ to R13.10/$ respectively.

The Rand (USD/ZAR) – Technical View (Previous Note)

USDZAR 23112018

The longer-term uptrend for the USD/ZAR (marked with the dotted trend line) has recently been broken to the downside. In the short to medium term, the USD/ZAR currency pair still trades within a broad sideways range between levels R14/$ and R15/$. The price is currently testing the lower level of support of this range (R14/$).

There is an intraday low at R13.85/$ which we are using to determine a possible downward trend bias i.e. should the current levels of support not hold and the price move to close below R13.85/$, we would start to assume that the short to medium term trends are moving from sideways to a down insinuating further dollar weakness / rand strength to follow. This scenario could be catalyzed (omitting the influence of international catalysts) if the less expected outcome of a rate increase was to be realized, in which case the next levels of support for the USD/ZAR are considered at R13.50/$ to R13.10/$.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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