Hi there,

South Africa

We’ve seen some major moves on the ZAR over the past few days with USDZAR jumping from 7.45 to touch 8.00 early this morning, and GBPZAR jumping from 14.70 on Thursday last week to a high of 15.87 this morning. It was actually late on Friday afternoon that the ZAR made these big jumps on the back of another huge trade deficit, and generally unimpressive CPI data. The other problem is that the PPI figures weren’t even released due to a ‘calculation discrepancy’ of sort. Mmmmm, sounds a little like a campfire story to me. These figures have been released once a month for the past who knows how long but all of a sudden there’s a problem? It sounds like absolute rubbish to me. I’ve never believed these inflation figures that they come up with so they may as well make something up anyway. Here’s what I suspect, the figure that they calculated is pretty inflationary, pointing to further rate hikes (which isn’t good for the economy, employment and the reputation of the government) so it was decided to ‘delay’ the release while they decide what will be an acceptable figure to pull out of the hat. The problem here is that the international community believes these numbers, although they do seem to be catching on slowly (evidenced by the performance of the ZAR over the past few weeks).

OK, so here we go for the week. We’ve just broken the former high at 7.94 and have hit a brick wall at the psychological 8.00 level. I remember a few years back when we dropped under 8.00 on the way down. The market never looked back! I assume that a break above this level could be the final blow to the last of the ZAR bulls.

My only concern at the moment is that the market is very overbought short-term so going to be a tough ask to sustain any move above 8.00 and push higher in the near term. These are excellent levels to sell GBP, USD and EUR versus the ZAR.

Keep an eye on the following levels this week. The bias is strongly upwards but market is very overbought in short term so be careful of a small correction downwards in the next day or so:

8.00 ** - Huge psychological level. A break above would probably see stops being triggered and a nice fast move upwards
7.90 – Current Price
7.86 – Bottom of gap over the weekend. Should act as support.

Australia and New Zealand

Australia interest rate decision first thing Tuesday morning with the market expecting a rate rise! Yip, the rest of the developed world are cutting interest rates and Australia is rising. This is theoretically good for the currency and should see it strengthen although chatter in the market is that it’s going to be a ‘buy the rumour, sell the fact’ type of move .ie. the AUD will be sold on the back of the interest rate rise as the market has already priced in the rate rise. Remember that markets are forward looking so tomorrow’s rate rise is actually ‘old news’ – strange but true!

New Zealand also have their rate decision on Wednesday night and there is no change expected here. Both the NZ and Aus economies have been relatively unscathed by the credit crisis so it’s not surprising that the currencies are stronger seeing as though they are still on a rising interest rate curve (similar to the EUR which is trading near all time highs versus the USD and GBP). It is the GBP with which we are concerned so it doesn’t take a rocket scientist to figure out which you would rather hold. A relatively untouched currency from a credit perspective, offering a high yield, supported by very high commodity prices? Or the GBP supported by a sharp falling rate curve, declining housing prices .etc.? I’m not a fan of the Pound and it’s had its day in the sun as a ‘high-yielder’. The GBP is the USD’s puppy dog. It takes the brunt of the blame for anything that goes wrong in the US, and the pecking order will always feed down from the US directly into the UK economy. This is the problem with the UK economy, they haven’t established their own identity (like Europe) – they will always be the US’d lackeys! And it is for this reason that the horizon does not look too great for the GBP.

So how does this help you going forward? It doesn’t really if you are looking to sell GBP for AUD or NZD. We’ve seen a fairly strong short-term bounce since the end of last week but the downtrend in these currency pairs has been so strong and extended that there aren’t going to be any short-term miracles here. These markets are going to need to put in and build a very strong base before being able to move higher (similar to what the ZAR did after it’s massive bull run up to 2006). That’s just the way it is. To me there doesn’t seem to be any massive joy on the horizon for GBP sellers but this recent bounce could be the start of a bottoming pattern.

The trend is without question down at the moment but we’ve seen aggressive buying of the lows of late which could signify the start of a larger bottoming pattern. The lines in the sand have been drawn at GBPAUD 2.0950 and  GBPNZD 2.41. These are the key support levels going forward and need to hold in order to move upwards. I suspect the market would need to test these lows again just to make sure there are actually ‘real money’ buyers at these levels so my short term bias for the next few weeks is a consolidating pattern between current levels and the lows mentioned above.

Good luck and all the best for the week ahead!

** PLEASE NOTE THAT WE NOW TRANSFER MONEY OUT OF SOUTH AFRICA AS WELL! Please contact us with any queries.

Please do not hesitate to call Exchange4free for any advice or foreign exchange related queries.

08456521022

We are the experts on the ZAR and provide the cheapest way to send your money home.

- Guaranteed best exchange rates on the ZAR (we will beat any quote)
- Completely FREE money transfers with no hidden costs
- No settlement or deposit fees at your SA bank (which can be up to R500)

www.exchange4free.co.uk