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ZAR: Risk Aversion, Domestic Political Tensions Weigh On Rand

ZAR
EM BulletBulletEmerging Market News

US President Trump's renewed tariff sabre rattling has inspired risk aversion at the start to the week, which has taken its toll on the rand, a bellwether for EM FX. Global sentiment has been further damaged by the release of below-forecast official PMI data out of China. Meanwhile, tensions between the main parties participating in South Africa's government of national unity (GNU) continued to simmer following the enactment of the controversial Expropriation Act last week.

  • Spot USD/ZAR has rebounded from one-month lows printed on Friday and last trades at 18.5804, around 1,800 pips higher on the session. The pair has returned above broken support from Jan 6 low of 18.4323 and bulls look for consolidation there, while setting their sights on Jan 13 high of 19.2296. Bears seek fresh losses beyond the 50-EMA (18.4370) and the 61.8% retracement point of the Dec 12 - Jan 13 rally (18.2343).
  • The Democratic Alliance (DA) called for a "reset" in its relations with the African National Congress (ANC) amid tensions over the Expropriation Act. The Sunday Times reported that the coalition "is facing its most serious crisis to date, with the DA threatening to withhold its support when the government presents its budget in parliament next month."
  • SAGBs sold off before clawing back some of the initial losses, but remain on the back foot, with the curve running a tad steeper. South Africa's 5-year and 10-year breakeven inflation rates have climbed to 4.38% and 5.49% respectively.
  • The composite BBG Commodity Index has faltered by 1%, with the precious metals subindex last seen 0.9% worse off. Gold trades ~$13.7/oz. lower.
  • The SARB will announce its next interest rate decision on Thursday, with a majority of 14 out of 15 economists polled by Bloomberg thus far expecting a 25bp cut.
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US President Trump's renewed tariff sabre rattling has inspired risk aversion at the start to the week, which has taken its toll on the rand, a bellwether for EM FX. Global sentiment has been further damaged by the release of below-forecast official PMI data out of China. Meanwhile, tensions between the main parties participating in South Africa's government of national unity (GNU) continued to simmer following the enactment of the controversial Expropriation Act last week.

  • Spot USD/ZAR has rebounded from one-month lows printed on Friday and last trades at 18.5804, around 1,800 pips higher on the session. The pair has returned above broken support from Jan 6 low of 18.4323 and bulls look for consolidation there, while setting their sights on Jan 13 high of 19.2296. Bears seek fresh losses beyond the 50-EMA (18.4370) and the 61.8% retracement point of the Dec 12 - Jan 13 rally (18.2343).
  • The Democratic Alliance (DA) called for a "reset" in its relations with the African National Congress (ANC) amid tensions over the Expropriation Act. The Sunday Times reported that the coalition "is facing its most serious crisis to date, with the DA threatening to withhold its support when the government presents its budget in parliament next month."
  • SAGBs sold off before clawing back some of the initial losses, but remain on the back foot, with the curve running a tad steeper. South Africa's 5-year and 10-year breakeven inflation rates have climbed to 4.38% and 5.49% respectively.
  • The composite BBG Commodity Index has faltered by 1%, with the precious metals subindex last seen 0.9% worse off. Gold trades ~$13.7/oz. lower.
  • The SARB will announce its next interest rate decision on Thursday, with a majority of 14 out of 15 economists polled by Bloomberg thus far expecting a 25bp cut.