Chinese Stimulus Boosts Rand, S. Africa's CPI Inflation Cools In December

Rand appreciation continues, with USD/ZAR extending losses to a cumulative 1.7% over the past couple of days. The currency has received fresh support from the PBOC's announcement of an impending 50bp RRR cut (equivalent to the injection of CNY1tn of liquidity into the Chinese economy) and guidance signalling potential for lower LPRs further down the road. The move was announced amid concerns about China's economic recovery as well as tight pre-LNY liquidity conditions.

• Domestically, the main point of note was the release of December CPI data, which printed marginally below market projections. Headline moderated to a four-month low of +5.1% Y/Y (vs. +5.2% expected), while core remained steady at the SARB's target mid-point of +4.5% Y/Y as expected.
• The data came out on the eve of the central bank's meeting, during which policymakers are widely expected to keep interest rates unchanged (see our preview for details). Local FRAs slipped in reaction to local inflation figures, while SAGB yields extended earlier losses.
• However, the rand has proven immune to the impact of inflation data, hitting fresh intraday lows around the time of the release. Spot USD/ZAR last deals at 18.8589, over 1,800 pips loser on the session, after the pair returned below the 19.00 figure overnight.
• From a technical perspective, bears need a dip through Jan 12 low of 18.5385 before setting their sights on 18.1092, key support from Dec 15 low. On the topside, the initial layer of resistance is provided by Jan 22 high of 19.2180, followed by Oct 6 high of 19.6399.