USDZAR
The South African Reserve Bank (SARB) is expected to announce its key policy rate tomorrow at the end of its 3-day meeting which started yesterday. This meeting is the final one for the year and comes on the back of a very gloomy outlook for the rainbow nation’s economy.
The consumer price index data are scheduled for release today, with the consensus figure expected to come in at an annualized figure of 4%.
The SARB’s last rate cut was in July, when it shaved 25bps from the interest rate. Rates were left unchanged in September at 6.5%. However, GDP and retail sales continue to disappoint. After growing only 1% on the average year-on-year since 2015, real GDP growth is expected to slump to 0.4% in 2019 and 0.8% in 2020.
Furthermore, the government is faced with huge deficits that stem from the cost of the bailouts of the state-owned power company Eskom, as well as the state-owned airline (South African Airways).
Analysts are divided as to the action that the SARB will take. Some think the central bank will hold rates, while there are others who are of the view that only a further 25bps will suffice to preserve its credit rating and prevent further fiscal deterioration.
So what does the announcement hold for the USDZAR?
The USDZAR is trading within a symmetrical triangle on the daily chart. Traders are obviously waiting for tomorrow’s announcement to make a decision on which border to push the price through.
The probability of a rate hold is greater than a rate cut. This may already have been priced in by the markets, which could be ZAR-positive. This could send the USDZAR below the triangle’s lower border, which opens the door to the downside targets (14.5448 or even 14.2837).
A rate cut could be seen as a market surprise. This could weaken the ZAR and send the USDZAR above the triangle’s upper border, targeting 14.9928 and 15.1692.
Market responses of the exotic currencies can be unpredictable during high profile news, with price swinging one way and then the other with moves that are worth hundreds of pips. Extreme caution is advised in taking positions on the SARB interest rate announcement.