Crippling Power Cuts Keep Pressure On Rand, BER Survey Shows Inflation Expectations Rise

Spot USD/ZAR has advanced despite a strong showing from commodity markets and last operates at ZAR17.0730, up ~2,440 pips on the day, with South Africa's deepening energy crisis likely sapping strength from the local currency. President Cyril Ramaphosa cancelled his trip to the WEF to deal with the blackouts.

• From a cross-asset perspective, the commodity complex is firmer, with the aggregate BBG Commodity Index last ~0.6% higher on the day. The precious metals subindex outperforms and sits ~1.3% better off after printing new cyclical highs. Local-currency bond yields sit higher across a steeper curve, while the FTSE/JSE Africa All Share Index has inched higher.
• The latest BER Inflation Expectations Survey showed that CPI expectations for this year rose 0.2pp to +6.1% and now exceed the SARB's inflation target range of +3-6% Y/Y, with all social groups revising their forecasts upwards. Rising inflation expectations and the recent electricity-tariff hike complicate the SARB's task of bringing inflation under control.
• South African assets have been unfazed by the data, with near-term SARB rate-hike pricing based on FRA contracts also little changed. The FRA 1x4 vs. 3-Month JIBAR spread last sits at ~26bp, with the SARB set to hold its next monetary policy review on Jan 26. In the meantime, December CPI data will be released this Wednesday.
• From a technical standpoint, a key short-term support for USD/ZAR lies at Jan 12 low of ZAR16.6950. Bulls look for a break above Jan 6 high of ZAR17.4343.