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SOUTH AFRICA: Eskom Risks Weigh on Rand, USDZAR Bullish Reversal Signal

SOUTH AFRICA
EM BulletBulletEmerging Market News
  • Renewed concerns of loadshedding in South Africa have moderately weighed on the rand Friday, with USDZAR (+0.3%) currently set to close the week roughly 1.35% in the green. We previously noted that Monday’s strong rebound may be an early reversal signal - a bullish engulfing candle - and if it is, the pattern signals the end of the corrective cycle between Jan 13 - 24.
  • Overall, the trend condition remains bullish, and a continuation higher would expose key short-term resistance at 19.2296, the Jan 13 high.
  • Latest headlines suggest stage 3 loadshedding will be implemented this weekend, ending a streak of more than 10 months of uninterrupted power supply, which had helped in the recovery of domestic economic sentiment.
  • As a reminder, SARB MPC members seemed particularly concerned about the ramifications of protectionist policies of the new US administration. They explicitly admitted that they “spent some time during this meeting reviewing a trade war scenario”, in which a 10pp increase in US tariffs followed by retaliatory measures by other countries was modelled to push USDZAR to a high of nearly ZAR21, boost domestic inflation to +5% Y/Y and result in a 50bp higher peak level of interest rates relative to baseline forecasts.
  • In terms of upcoming data, the ABSA Manufacturing PMI release is scheduled on Monday.
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  • Renewed concerns of loadshedding in South Africa have moderately weighed on the rand Friday, with USDZAR (+0.3%) currently set to close the week roughly 1.35% in the green. We previously noted that Monday’s strong rebound may be an early reversal signal - a bullish engulfing candle - and if it is, the pattern signals the end of the corrective cycle between Jan 13 - 24.
  • Overall, the trend condition remains bullish, and a continuation higher would expose key short-term resistance at 19.2296, the Jan 13 high.
  • Latest headlines suggest stage 3 loadshedding will be implemented this weekend, ending a streak of more than 10 months of uninterrupted power supply, which had helped in the recovery of domestic economic sentiment.
  • As a reminder, SARB MPC members seemed particularly concerned about the ramifications of protectionist policies of the new US administration. They explicitly admitted that they “spent some time during this meeting reviewing a trade war scenario”, in which a 10pp increase in US tariffs followed by retaliatory measures by other countries was modelled to push USDZAR to a high of nearly ZAR21, boost domestic inflation to +5% Y/Y and result in a 50bp higher peak level of interest rates relative to baseline forecasts.
  • In terms of upcoming data, the ABSA Manufacturing PMI release is scheduled on Monday.