ZAR: Rand Trading at Fresh One-Year High Ahead of US PCE

A sustained fade in the USD index from yesterday’s highs has contributed to a 0.6% move lower for USD/ZAR this morning, which is trading at a fresh one-year low. Losses for the pair accelerated through the 17.67 region, where both yesterdays and the Aug 19 lows are found. The next support for the pair is marked at 17.5713, the Jul 28 ‘23 low, ahead of key support at 17.4193, the Jul 27 ‘23 low.

• Commerzbank noted that ZAR strength yesterday was driven by the lower-than-expected PPI figures. Normally, rate cuts are always associated with a weaker currency. However, the situation in South Africa is somewhat different as disinflation here is due to a structural improvement on the supply side, Commerzbank say.
• Disinflation is therefore paving the way for lower interest rates, which could lead to further investment and ongoing structural improvements. This positive development reduces the risk premium that the foreign exchange market has placed on South Africa in recent years and strengthens ZAR, in their view.
• Indeed, Deputy Governor of the SARB Rashad Cassim said yesterday, “There’s a growth side and there’s an inflation side; there may be a double whammy, there may be a good story here.” Meanwhile, Governor Lesetja Kganyago said “If we deal with these structural constraints, we can lift our GDP growth potential to 3.5%.”