Rand Fails To Draw Support From Expectation-Busting CPI, Focus Turns To SARB Rate Decision

The reaction in USD/ZAR to stronger than expected South African CPI data has been limited, with the pair tracking oscillations in the BBDXY index around the release.

• Headline inflation accelerated to +7.6% Y/Y last month from +7.5% prior, with core inflation quickening to +5.0% from +4.7%, as both readings surpassed respective median estimates. The data came out on the eve of a SARB monetary policy review, which is expected to bring another hike to the repo rate (click here to see our preview). Consensus looks for the third back-to-back 75bp move.
• The FRA 1x4 vs. 3-Month JIBOR spread widened after the release, which lends support to the view that the latest batch of inflation data cements the case for a 75bp rate hike tomorrow.
• Bond yields knee-jerked higher in the reaction to above-forecast CPI readings but have now fully retraced the move, sitting 5.7-6.5bp lower across the curve.
• South Africa 10-year inflation breakeven rate is back from post-CPI session highs. It last sits at 6.16%, just above the three-month low of 6.13% printed yesterday.
• USD/ZAR last seen at ZAR17.2476. The pair has moved below key trendline support drawn off Apr 13 which intersects at ZAR17.2644. Further losses past Nov 15 low of ZAR17.1107 would open Sep 13 low of ZAR16.9818. Bulls look for gains past Nov 17 high of ZAR17.5553.