Summary:
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South African Reserve Bank raise repo rate to 6.75%
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Hike comes despite gloomier outlook for growth
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Rand gains over 1% against the US dollar
The best performing currency today is the South African Rand, which has enjoyed a strong move higher after an unexpected hike from the central bank. The South African Reserve Bank delivered a 25 basis point increase to its benchmark repo rate which now stands at 6.75%. This has come as something of a surprise to the market with a poll of Reuters economists expecting this tool to be kept steady at 6.5%.
The South African Rand is the best performing currency on the day after the rate decision, gaining 1.3% vs the US Dollar. Source: xStation
An indication of how narrowly this decision was reached can be seen in the split amongst members of the Monetary policy committee, with 3 voting in favour of a hike and 3 opposing - the rate was presumably increased despite this because governor Kganyago supported it. The message from the bank was surprisingly downbeat given the hike with Ksangyao stating that tighter global conditions, market volatility and a change in market sentiment towards emerging economies all presented currency risks for the Rand. Despite this the statement expressed that the implied path of policy rates is for 4 hikes of 25 basis points, to 7.5% by the end of 2020.
The move higher in the Rand has seen the currency appreciate to its strongest level in several months with the USDZAR falling to its lowest level since August. Taking fibs from the lows around 11.49 seen back in February you can see that the market is looking to make a clean break below the 38.2-41.4% region from 14.08-13.95 and if the move gains traction then there is scope for sizable declines. The 50% at 13.59 could be seen as a first target for shorts but the 61.8% at 13.09 provides a better risk:reward ratio and also coincides with the swing low from July.
USDZAR has dropped to its lowest level in 3 months today and is looking to make a decisive break lower. Daily highs of 13.95 could be seen as near term resistance while the 61.8% fib of the larger rally at 13.09 could be seen as a possible target for shorts. Source: xStation
