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AFEX Market Analysis

The South African Reserve Bank yesterday cut interest rates by 0.5%, to 3.75%. This has led to a strengthening of the rand against sterling as the market considers this move to be supportive for the economy. GBPZAR has weakened since its high near 23.70 on May 1st due to a combination of a recovery in commodity prices, positive news regarding the easing of lockdown restrictions on the global economy and headlines suggesting that a vaccine countering COVID-19 will be available before the end of the year. Sterling has also weakened recently as the Bank of England has not ruled out setting negative interest rates and the UK/EU trade talks continue to disappoint.

South Africa recently lost its investment grade status from the credit rating agencies and the economy was also in recession even before the pandemic. Unemployment is at 29% and annual GDP is declining by -0.5%. Eskom is a big drain on the economy as is South African Airways. The Ramaphosa government was supposed to be able to turn the economy around but it has been unable to do this.

When looking at the technical picture (see full report below), we can see that GBPZAR has corrected some 10% since its high and is approaching important support at 21.3700. Currently, we expect this support to hold. Cycle analysis confirms this view as inspection here suggests that the current GBPZAR weakness will possibly end between now and May 28th. They then suggest that GBPZAR will rise to exceed the recent high at the least with possible targets including 24.03  and possibly 24.6700 by June 21st.

Please note that the technical analysis below is a reflection of the fundamental situation. Fundamentals are subject to event risk (change without advance notice) and as such will change when events occur. Feel free to call +44(0)20 8049 7342 or email Jake Bavister at directly if you have any questions.

Issued by AFEX Markets plc. Any views expressed are for information purposes and do not constitute a personal recommendation. The data and statistics shown have been obtained from sources believed to be reliable, and AFEX Markets plc does not accept any liability for loss or damages suffered through any actions taken or not taken as a result of any information provided in this document.