The South African Rand has once again come into the spotlight after weakening rather dramatically since the beginning of 2013 (-6.44% YTD vs. USD). The past 48-hours has been particularly interesting as it saw two key events – December CPI & SARB interest rate decision, whereby CPI was in-line with expectations of 5.7% YoY and the central bank left rates unchanged at 5.00%. As a result, the ZAR weakened to levels not seen since 2009 as it appears the Reserve Bank’s hands are currently tied. While the 2013 growth outlook is likely to remain weak – SARB cut the 2013 GDP forecast to 2.6% (from 2.9%), threats of higher inflation in 2013 (which is expected to rise above their 3-6% band) prevents them from reducing interest rates to try to stimulate the economy. Furthermore, ongoing labor strikes and rating downgrades continue to hamper the ZAR.
That being said, the technical outlook has been pointing to this movement for several months (see two prior updates below) and while some are looking to jump on the bandwagon around present levels, we believe expressing caution may prove wise as USD/ZAR has reached both of the measured move objectives, Double bottom and Triangle, at 9.03/04 & 9.07/08 respectively (see chart). Even if USD/ZAR continues to push higher over the coming sessions, it could find resistance into the key 9.20/22 level – Convergence of Jan. 2009 low & 50% retracement (of the 2008-2011 decline). Additionally, we will continue to monitor daily RSI for a potential divergences over the coming days/weeks as it has marked key turning points in USD/ZAR in the past.
Chart Source: Forex Charts by eSignal