Rand Steadies, Catches Breather After Tuesday's Rally

Spot USD/ZAR sold off sharply on Tuesday as precious metals continued to garner strength (XAU/USD +0.6%, new all-time highs) while South Africa held a strong bond auction (bid/cover 3.8x, highest in six weeks). The pair then stabilised after its lowest close this year and trades at 18.4566 this morning, oscillating around unchanged levels.

• Tuesday's sell-off resulted in the rate tagging the lower Bollinger band, although the RSI remains above the 30 "oversold" threshold, with price action supported by the 76.4% retracement of the Dec 15 - Feb 23 upswing at 18.4114.
• Our technical analyst flags Dec 29 low of 18.2550 as the initial bearish target and a break here would open up Dec 15 low of 18.1092. On the flip side, bulls look for a move towards Mar 28 high of 19.1063.
• Political risk will increase in significance as we approach the May 29 elections, with failures to mount legal challenge to ex-President Zuma's MK Party being a headache for the ruling ANC (see the latest update from our political risk team).
• When this is being typed, BBG tracker of precious metals strength sits 0.5% above neutral levels while struggling to test yesterday's highs. SAGB yields are a touch firmer across the curve, while 10-year breakeven inflation rate sits at 6.87%.