CPI Report Prompts Slight Downward Adjustment To ZAR FRA Curve On Eve Of SARB Rate Decision

South African CPI figures came in softer than expected, prompting market participants to trim hawkish SARB bets. The rand's reaction has been limited, albeit USD/ZAR has now trimmed its earlier gains in sync with a pullback in the BBDXY index. SAGBs have turned bid and shot higher across the curve, with the longer end leading gains.

• Headline CPI eased to +6.8% Y/Y in April from +7.1% prior, printing below the +7.0% consensus forecast. Core CPI accelerated to +5.3% Y/Y from +5.2% prior, marginally undershooting the +5.4% median estimate in a Bloomberg poll. Statistics South Africa said that the main contributor to annual price growth were food and non-alcoholic beverages (+13.9% Y/Y), a known source of concern for the SARB.
• The release sent South Africa's FRA curve lower, albeit the move is fairly insignificant relative to the broader uptrend. We are sceptical if the data will move the needle for the central bank ahead of its rate decision tomorrow (see our preview here). The exchange rate remains near all-time highs, which entailed an elevated risk of preventing South Africa from taking advantage of external disinflationary pressures.
• When this is being typed, spot USD/ZAR trades at ZAR19.2081, a touch higher on the day. From a technical standpoint, bulls look for gains past the all-time high of ZAR19.5247 and towards the round figure of ZAR20.00. Bears keep an eye on May 16 low of ZAR18.9945, followed by May 2 high of ZAR18.5075.