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ZAR: ZARJPY Extends Rally from September Lows to 7%

ZAR
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The significant rally in ZAR this month, combined with underperformance of JPY in the G10 space, has prompted an impressive ~7% bounce in ZAR/JPY off the September lows. Positive internal and external SA fundamentals (e.g. ZAR denominated gold prices re-approaching April’s all-time highs, additional China stimulus measures) have underpinned the rally. Consequently, YTD (and indeed MTD) spot gains vs. the greenback are greater than that of all other EMEA currencies.

  • A continuation of ZAR strength would set sights on 8.4489 for ZAR/JPY, the 61.8% retracement level of the July 1 – August 5 downleg. For USD/ZAR, the pair has continued heading south this week, with attention on 17.1388 next, the 1.00 projection of the 1 Jun - Jul 27 - Oct 6 2023 price swing. Note the 14-day RSI for USDZAR has hit its lowest since 2021, with the indicator in 'oversold' territory at 26.32.
  • Regarding the SARB, we think that in light of a considerably improved inflation outlook and the start of rate-cutting cycles by major central banks, the SARB will continue to loosen monetary policy in November. However, the MPC’s cautious approach and its concern over a plethora of risks will likely keep the magnitude of cuts limited to the standard 25bps. The favourable rate differential may therefore continue to bias ZAR higher.
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The significant rally in ZAR this month, combined with underperformance of JPY in the G10 space, has prompted an impressive ~7% bounce in ZAR/JPY off the September lows. Positive internal and external SA fundamentals (e.g. ZAR denominated gold prices re-approaching April’s all-time highs, additional China stimulus measures) have underpinned the rally. Consequently, YTD (and indeed MTD) spot gains vs. the greenback are greater than that of all other EMEA currencies.

  • A continuation of ZAR strength would set sights on 8.4489 for ZAR/JPY, the 61.8% retracement level of the July 1 – August 5 downleg. For USD/ZAR, the pair has continued heading south this week, with attention on 17.1388 next, the 1.00 projection of the 1 Jun - Jul 27 - Oct 6 2023 price swing. Note the 14-day RSI for USDZAR has hit its lowest since 2021, with the indicator in 'oversold' territory at 26.32.
  • Regarding the SARB, we think that in light of a considerably improved inflation outlook and the start of rate-cutting cycles by major central banks, the SARB will continue to loosen monetary policy in November. However, the MPC’s cautious approach and its concern over a plethora of risks will likely keep the magnitude of cuts limited to the standard 25bps. The favourable rate differential may therefore continue to bias ZAR higher.