WEEKLY ZAR ECONOMIC AND TECHNICAL COMMENTARY – 16 April 2007
There really isn’t very much happening in the ZAR at the moment.
Last week saw the MPC hold interest rates steady and once again there is suspicion within the markets that this decision was influenced by Thabo Mbeki who made it fairly clear that he didn’t want to see an interest rate rise.
The thing here is that the MPC are meant to be seen as an independent body, uninfluenced by political agenda’s. Who knows though? It may have even been the right decision (not to increase rates). The great thing about the markets is that they show you very quickly whether you’ve made the right decision or not. Now I’m not talking just ZAR moves – but inflationary pressures as well.
A lot of people panic over these meetings and throw their hands up in the air when the MPC doesn’t make the right decision (in their view anyway). I say, relax, take it easy. The next meeting is only 2 months away. It’s the overall picture that’s important and the general interest rate curve that’s important – not the per meeting decisions. They can always be raised next time – and I assume they might.
The interesting thing though about this past week’s rate announcement was that it was 50/50 for a rate hike. I was expecting more of a reaction to the data but not much happened at all.
Truth be told, USDZAR is trading at exactly the same levels as it was at the beginning of Jan 2007 (around 7.16). Man, I’d love to give you a big story on this currency but there really isn’t one at the moment.
The USDZAR chart is as good as flat.
The interesting thing though about a range-bound market though is that when the market finally breaks the outer boundaries of its trading range then it generally flies. Seeing as though we’ve been flat lining within the major trend for the past 4 months I expect a breakout to be fairly significant and to signify the direction for the ZAR for most of the year.
So the big question here is: What are the upper and lower boundaries?
Upper – 7.54
Lower – 7.03
Look there’s always a bit of give and take with these levels but the bottom line is that a clear break of the above 2 levels will point to the direction for the next 6 or so months. The 7.50 and 7.10ish areas have been tested on numerous occasions since the beginning of the year and it’s only a matter of time until we have a good clean break.
For the moment we’re fairly quiet within the bigger picture but I’m still leaning towards a weaker ZAR over time (primarily for fundamental reasons). Technically there’s no clear direction at the moment.
