USD/ZAR Surges Through Resistance Levels, Prints New Four-Month High

The rand is struggling to find poise after a sharp sell-off on Thursday, with brief post-budget gains paling into insignificance as a result. To our knowledge, there was little in the way of domestic catalysts behind the move, which has led some to point to the rand's vulnerability to external sentiment. While Thursday's upswing seemed driven by the greenback's rebound, the correlation between USD/ZAR and the BBDXY Index has broken down this morning, with the pair staging another rally into the European morning even as the dollar index stayed flat.

• Spot USD/ZAR breached technical resistance from Jan 22 high of 19.2180 and the round figure of 19.5 and last deals at 19.2821. This represents a bullish development, bringing Oct 6 high of 19.6399 into view. Bears look for a pullback towards Feb 2/Jan 12 lows of 18.5578/18.5385.
• There has been no reprieve on the electricity front, with Eskom still running Stage 4 loadshedding until further notice, following the unexpected breakdowns of five generating units earlier this week.
• There has been little follow-through on the Treasury's first Macro-Economic Policy Review, which advised that "technical work on the appropriate level of an inflation target for South Africa’s current economic context (...), and what form such a target should take (point or range), should continue."
• The composite BBG Commodity Index and the precious metals subindex have shed 0.3% each this morning. SAGB yields are broadly higher across the curve, with 10-year breakeven inflation rate soaring by 10bp to 6.44%, ahead of an auction of linkers.