Rand Catches Breather After SARB-Inspired Slump

Spot USD/ZAR is cutting post-SARB gains and last trades at ZAR19.7227, down ~800 pips on the session. The wider uptrend remains intact, with the early downtick helping the pair unwind overbought technical conditions, as the RSI returns below the 70 threshold. A drop below May 16 low of ZAR18.9945 and May 2 high of ZAR18.5075 is needed to give bears some reprieve. Bulls look for a renewed rally towards the ZAR20.00 figure.

• The SARB's downbeat comments on the rand's outlook and the persistence of plethora of stagflationary factors have fuelled defeatist moods among market participants, with talk of an imminent breach of ZAR20.00 becoming increasingly widespread. USD/ZAR risk reversals have extended their upward adjustment today, with 1-month tenor rising to three-year highs as options traders add bullish bets.
• Local-currency bonds are slightly firmer at typing, curve runs a tad flatter on the day, with 10-year breakeven inflation rate last seen at 7.21%. The FRA curve has edged higher but only marginally.
• The aggregate BBG Commodity Index has ticked higher and sits ~0.6% above neutral levels, recovering from new cyclical lows printed yesterday. The precious metals subindex has added ~0.6%.