Hi there,

South Africa

Not much coming out of SA this week from an economic perspective but there is a growing expectation of an interest rate cut in the UK next week which is pressuring the GBP which is feeding into a downside bias in GBPZAR.

It’s a tough one to call this coming week with results of the Zim elections coming out which will no doubt affect the ZAR in the short-term. It may not be the actual result of the polls that affects the ZAR but rather the reaction to the results that will affect what the broader community decides to do. On the one end of the scale you have a case where Mugabe loses the elections and walks away peacefully (happy days for the ZAR) or the other end of the scale where a Mugabe win or loss is met with violence. These are purely ‘end of scale’ comparisons but this is what could potentially happen and I’m pretty sure that any outcome, once it is known, is going to affect the ZAR in the short term.

So fundamentally for me this week is all about Zim. What will the results be? What is going to happen after the results? What will SA have to say? Will SA once again give the big thumbs up to a free and fair election?

Already, SA is starting to look a little politically shaky (I say ‘look’ here) and people are debating what SA’s political future is. So let’s see.

Technically, I think USDZAR is looking toppish. We’re looking pretty overbought and there is divergence on overbought indicators. The trend is looking a bit tired at these levels and I expect that any positive impact from Zim could knock USDZAR down quite aggressively. This is just the technical picture but I expect Zim to still be the dominant theme this week which will ultimately determine ZAR’s fate over the next few days.

My feeling though is that the ZAR is very dangerous at the moment and we’re experiencing pretty wild wide intraday swings which is indicative of an unsure market. Don’t take too many chances and manage your risk effectively during these volatile times.

Australia and New Zealand

Australia interest rate decision this week expected to remain unchanged at 7.25% which is a pretty attractive yield versus other major currencies who are seeing aggressive interest rate cuts at the moment.

Once again the expectation of an interest rate cut in the UK next week is applying downside pressure on both GBPAUD and GBPNZD, and it would be unrealistic to expect these currency pairs to rally much this week on the back of this expectation and as the market prices in these cuts. For the week then I would expect these pairs to be steady with a slight downside bias. Both of these commodity driven currencies still offer good yield to the market with their interest rate cycles lagging those of the US and the UK.

I feel strongly that we could be seeing a bottom forming within the major trend here but this turn will only be reinforced when their interest rate cycles turn. At the moment the fact that these cycles are still theoretically up we will not see an aggressive bottom put in place within the major trend but I suspect that this will be the final blow to the GBPAUD and GBPNZD long term downtrends.

This trend won’t turn on a dime though and already we’ve seen a pretty beefy bounce up. We need some sort of identifiable bottoming pattern to form here and we may get a slight dip in the short term on the back of the expectation of UK interest rate cuts next week before we maybe start heading up again.

Good luck and all the best for the week ahead!

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