- Summary:
- The pound to rand pair rallied after South Africa announced a new Covid-19 lockdown. The UK is also set to have a lockdown. As such, investors favor the UK.
The pound to rand (GBP/ZAR) pair rose yesterday after Cyril Ramaphosa launched a three-week Coronavirus lockdown. The currency pair has risen by almost 2% after the president made the announcement.
The announcement came on the same day as Boris Johnson launched a lockdown in the UK. With activity set to stop in the two countries, it appears that investors believe in the pound more than they do the South African rand.
There are two main reasons for this. First, South Africa was in a financial crisis before the current Coronavirus crisis started. Indeed, the country sunk into a recession in the fourth quarter, after its economy shrank by 1.4%. Second, the country is nearing a rate cut by Moody’s, which has placed it in its watchlist for a few months. This could make the country have difficulty in raising money.
Third, South Africa’s main companies, like Eskom and South African Airlines, are literally insolvent unless the government intervenes. This could chip valuable financial resources from taxpayers. Most importantly, the country can barely afford to widen its budget deficit.
The UK too has its problems. Many companies have shut down their activities due to Coronavirus, and the country is struggling to reach a deal with the European Union. However, as a developed country with a diversified economy, investors believe more in it than South Africa. This explains why the pound to rand pair has been rising.
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Pound to Rand Technical Analysis
On the hourly chart, we can see that the pair has been on an upward trend. During this uptrend, the pair has made an equidistance channel, with symmetric support and resistance. In the past few minutes, the pair has moved from the support level and it seems like it is headed to test the first resistance level at 20.8838. If this works, the pair will likely test the second resistance at the psychologically-important level of 21.0000.
On the flipside, we can see that the pair is consolidating near the support levels. Therefore, I will consider it bearish if it moves below the second support level.