ZAR: US Data Prompts Extension of USD/ZAR Recovery

USDZAR has extended the recovery off Monday’s multi-month low to around 1.8%, with a firmer greenback and moderately weaker gold prices contributing to topside momentum today. At typing, the pair is trading just above the 18.00 handle as the strong US PMI figures prompt additional gains for the greenback. Initial resistance is marked at 18.0970, the 20-day EMA.

• The pair has now traded higher for three consecutive sessions - having recorded its longest losing streak since 1999 prior to that - with Tuesday’s softer-than-expected inflation figures potentially underpinning rand weakness.
• Following the data, JP Morgan continue to assign an elevated probability of around 40% to a 50bp cut in September (or alternatively in November), even as their base case remains for a 25bp reduction.
• While Commerzbank say inflation dynamics look good enough to justify a rate cut by the SARB in September, they nevertheless note that this should not negatively affect the ZAR as real rates remain quite high.