ZAR: Rand Remains On Defensive Amid Retracement Of Post-Cabinet Rally

The rand gave away gains driven by optimism after the formation of the new South African cabinet, with USD/ZAR rallying since yesterday morning to test resistance from its 50-EMA at 18.4587. The pair last deals at 18.4303, around 600 pips higher on the session, and a break above the 50-EMA would allow bulls to set their sights on the round figure/Jun 6 high of 19.0000/54. On the flip side, bears look for losses towards Jun 21 low of 17.8689.

• Uncertainty around the sustainability and policy agenda of the new cabinet may have re-boosted the rand's political risk premium, even as most analysts lauded the outcome of the ANC-DA talks as market-friendly. Another delay to the announcement of a provincial executive in Gauteng, where the two largest parties are struggling to find compromise, may have spoilt sentiment to a degree. Profit-taking activity may have also played a role in the latest rand sell-off, with the positive outcome of national-level ANC-DA talks arguably mostly priced in well ahead of the official announcement.
• SARB Governor Kganyago said that the central bank "takes comfort" in the reappointment of Enoch Godongwana as South African Finance Minister. The official noted that the SARB still sees risks to price stability, which include geopolitical factors, El Nino and oil prices, but is confident that inflation will return to the target by 1H2025.
• Bloomberg's composite commodity strength gauge and the precious metals subindex are close to neutral levels, offering little in the way of meaningful cues for the rand.
• SAGB yields are higher across the curve, leading to upticks in South Africa's breakeven inflation rates (10-year at 6.17%).