That’s why the rand is taking a hit right now

The rand has weakened nearly 4% against the US dollar since the start of the week and is currently testing the 200-day moving average, says Matthew Axelrod, risk manager at DG Capital Forex.

If the local currency closes above R15.10 / dollar, it would be a bearish signal with the next resistance level at R15.25 and then at R15.50, he said.

“We believe the market is pricing South African Reserve Bank rate hikes more or less fairly, but perhaps a little too zealous about the prices of the US Federal Reserve’s hike.

“In the short term, the rand could continue to weaken around R15.50 and then, if the Federal Reserve disappoint on May 4th, it could go back to around R15.00.”

Axelrod noted that there are several reasons for the currency slide this week:

  • Phase 4 load shedding is one of them;
  • Another is the intense flooding in KZN and the damage caused;
  • The inflation footprint was lower than expected, implying less upward pressure on local interest rates; Other
  • The US dollar has also been strong as the market is considering a rather aggressive Federal Reserve in two weeks’ time.

“Load shedding has a negative effect on margins, as the economy cannot function efficiently without power. The higher the stage we have to enter, the more negative the effect will be. This week we had to move on to Phase 4, which sees a significant amount of energy removed from the grid ”.

“Although inflation was printed at the very upper end of the South African Reserve Bank (SARB) target range, it was slightly below expectations, while core inflation was still below the midpoint, indicating a weak inflationary pressure on the demand side.

“These footprints suggest that the SARB may continue to gradually raise rates and that no aggressive hikes are needed, which is rand negative, while the US Federal Reserve is currently relatively aggressive.”

At 2:10 pm the rand was trading at these levels against the major currencies:

  • 15.24 R / USD
  • R16.59 / EUR
  • 19,86 € / GBP

Reading: Rising interest rates and shedding burdens hit South Africa

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