Market Update – GBP / ZAR
Having approached the October lows over New Year, the pound has rebounded strongly in January, helped in part by hawkish comments from Bank of England policy maker Andrew Sentance, prompting markets to start bringing forward expectations of a possible interest rate hike in the UK. Sterling’s tailwind has been bolstered by talk of a +0.4% figure for fourth quarter GDP, but the figure came in at just 0.1% this morning, confirming that the country pulled out of recession at the end of 2009, but only by the finest of margins. Sterling has lost a cent on the news as disappointment sweeps the market.
The high yielders have been on the back foot this week on reports that China’s central bank will raise reserve ratios for several key lenders, effectively tightening monetary policy by reducing lending and raising the interest rates required by lenders. Also weighing on sentiment toward the high yielders is the dramatic stock market sell off seen over the last few days. If that trend continues and develops into panic, we could see severe weakness in currencies like AUD, NZD and the Rand. Buyers of these currencies should therefore be on alert for opportunities. The Rand has also been overshadowed by corrections in commodity markets, especially gold, which accounts for a large proportion of South African exports and has declined 6% this year and 11% from the record highs seen in December.
The technical outlook is mixed. We still have short term positive momentum backing the pound. There is technical resistance at 12.47-63 and then no noteworthy levels until 13.50, the key resistance that scuppered the pound’s rally in October. Buyers of the Rand hoping for a continued improvement should strongly consider placing a stop order to protect against a renewed slide. This is especially relevant given the recent rally.
Any opinions expressed in this document are those of TorFX
analysts. Any analysis and/or forecasts provided are aimed at
helping clients understand market conditions and developing trends.
Clients are wholly responsible for their own trading
decisions.
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