Rand Loses Ground, Coalition Talks Under Microscope

The upswing in USD/ZAR has been closely aligned with the move in the BBDXY index, with market participants seemingly opting to stay on the sidelines re: ongoing coalition talks in South Africa. Domestic Q1 GDP data disappointed, but the rand has been unfazed so far.

• The pair last deals at 18.7278, over 2,100 pips higher on the session. Bulls look for a break above 19.0659, the 76.4% retracement of the Apr 19 - May 21 downleg. Bears keep an eye on the 20-EMA at 18.5055.
• Local media outlets reported that ANC leaders (so-called National Executive Committee or NEC) will discuss coalition strategy today. The Daily Maverick suggested that the ANC's preferred scenario would be a confidence-and-supply agreement with the DA, but various options are on the table. In a separate report, the outlet noted that a "group within the ANC's National Executive Committee (NEC) is firmly against" partnering with the DA.
• South Africa's economy grew 0.5% Y/Y in Q1 versus +0.8% expected, while the previous reading was revised to +1.4% from +1.2%. On a sequential basis, the economy shrank 0.1% Q/Q versus +0.1% expected. It is worth noting that the flare-up in power cuts in Q1 subsided thereafter, but high-frequency macroeconomic indicators continued to signal demand weakness.
• The aggregate BCOM Index has extended its recent losses and operates 0.7% lower on the day, with the precious metals subindex last seen 1.4% worse off, as gold trades ~$20.8/oz. below neutral levels.
• SAGB yields sit slightly higher across the curve, with 10-year breakeven inflation rate last seen at 6.73%.