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Tuesday, November 24, 2020

Rand spikes to 7-month high ahead of SARB and Fed decisions

  • The USD/ZAR pair dropped to a seven-month low as traders wait for the Fed and SARB rate decisions.
  • The two banks are expected to leave rates unchanged in the September meetings.
  • The rand is also gaining as ANC shelves plan to nationalise the central bank.

The USD/ZAR pair crossed a key support today as traders focused on the South African and US central banks. The pair fell to a 7-month low of 16.2927. Similarly, the South African rand gained by 0.25% against the British pound and by 0.80% against the euro.

Rand spikes to 7-month high ahead of SARB and Fed decisions 3

ANC delays nationalising the SARB

The South African rand gained today after Bloomberg reported that the Africa National Congress (ANC) party had paused the process of nationalising the bank. In a statement to Bloomberg, a high-level ANC member said that the government was not in a position to buy the bank from its private individuals. That is because of the financial burden caused by the coronavirus pandemic.

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For starters, South Africa’s central bank is one of the few central banks that are owned by private individuals. Other prominent banks with such ownership are the Swiss National Bank (SNB) and Bank of Japan (BoJ). The SARB’s shares are held by about 650 shareholders but anyone can buy and sell them in over-the-counter platforms.

In 2017, the ANC voted to nationalise the bank as most other central banks did centuries ago. To do that, the government will need to spend money and buy-out the existing shareholders. Now, because of the pandemic, the government believes that such a move will not be feasible. While no figure has been stated, it is estimated that the government would need to spend more than $56 billion to buy the bank.

SARB and Fed eyed

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The USD/ZAR declined today as traders waited for interest rate decisions by the Federal Reserve and the SARB.

The US dollar is under pressure today as traders wait for a relatively dovish Fed. The dollar index, which measures the dollar’s performance against peers, has fallen by more than 0.20%, extending the losses that started on Friday.

Analysts expect that the bank will leave interest rates unchanged at the range of 0.0% and 0.25%. They also expect the bank will leave its open-ended quantitative easing policy intact. Also, there is a likelihood that the bank will sound a warning about the state of the economy because congress has failed to pass a stimulus deal.

Meanwhile, the South African central bank started its meeting today and is also expected to leave interest rates unchanged tomorrow. Most analysts polled by Reuters expect the bank will next slash rates again in the November meeting.

The SARB has been among the most active central banks this week. It has slashed rates by 300n basis points in a bid to cushion the economy from the crisis. Analysts at Continuum Economics expect that inflation will rise by 4% by end of the year. At the same time, a poll by Reuters expect the inflation to rise by 3.3% this year and 4.2% in 2021.

USD/ZAR technical outlook

The USD/ZAR pair dropped to a seven-month low of 16.2970 ahead of the FOMC and SARB interest rate decisions. The weekly chart shows that the pair has managed to move below the previous support level of 16.3677. It is also below the 50-day and 25-day exponential moving averages and is along the 38.2% Fibonacci retracement level. Therefore, I suspect that the pair will continue falling as bears target the 50% retracement level at 15.4141.
Rand spikes to 7-month high ahead of SARB and Fed decisions 4

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