Full Article - Economic fundamentals for the week purported weakness in the underlying currency as traders continued to keep the emerging market pair in a rather wide range pattern. Ranging 1500 pips wide, the South African rand lost against theUS single currency, finding formidable support at the 7.3000 figure. Greenback bidders then stormed the gates, taking down the 7.3500 and 7.4000 figures before topping out at the 7.4500 resistance ceiling at the end of the week. Subsequently, further selling is likely to follow in keeping the currency pair range bound.
Mounting for a potential boost higher in the domestic currency, rand bulls are likely to be encouraged by a handful of data expected for release during the week. Sparking off positive sentiment will be an expected narrowing of the current account balance for the second quarter. Previously printing a 103.1 billion rand deficit, the shortfall is expected to narrow slightly to 96.5 billion, boosting prospects of growth in the largest economy of the region. The figure is additionally likely to affect the upcoming South African Reserve Bank decision on October 12, with expectations for further tightening by policy makers. Additionally in favor of hike proponents will be the retail sales constant. Rising by 10.6 percent in the previous month, a sustained gain in the constant will be indicative of further growth in the region, boosting the consumer price index expectations in the later half of the week. For the month of August, consumer prices are expected to have risen at a 5 percent annualized pace in the headline calculation. The core rate is subsequently estimated to have remained buoyed against the 3.8 percent seen in July. The results are likely to support further tightening by the central bank in the short term as growth expectations are rising for further improvement in the next year.
Conversely, the previous weeks data stands relatively negative as traders and market participants witnessed a decline in manufacturing production. Although the previous months figure was revised higher by 1.9 percent, the July figure was lower by 0.7 percent. A full reversal of the growth previously seen, the decline suggested to speculators that the recent string of rate increases may finally be making their way through the ranks of the private sector, limiting growth. However, business sentiment remains buoyed, albeit for now. According to the Bureau of Economic Research, business confidence rose 3 points to a reading of 85 versus a second quarter release of 82. Here, firm heads are rationalizing the slower rate of interest rate increases versus the rapid number of rate cuts witnessed previously to boost expansion. Additionally, companies are finding it easier to pass on higher to the consumers in boosting confidence. Consequently, consumer confidence was ill effected as the indicator fell 3 points from a 20 reading to print 17 for the third quarter. Reflective of the effects of higher interest rates, consumer continue to remain optimistic of expanding economic prospects as the gauge remained well above the zero minimum.
Economic Releases for September 20 September 27
| Date | Event | GMT | EST | Consensus | Previous |
| 9/21 | Current Account Balance (2Q) | 9:00 | 5:00 | -96.5B | -103.1B |
| 9/21 | Current Account % GDP (2Q) | 9:00 | 5:00 | 6.0% | 6.4% |
| 9/21 | Retail Sales Constant (YoY)(JUN) | 9:00 | 5:00 | -- | 10.6% |
| 9/21 | South Africa Unemployment (MAR) | 11:00 | 7:00 | -- | 26.7% |
| 9/27 | Consumer Price Index (all items)(MoM)(AUG) | 9:30 | 5:30 | -- | 1.0% |
| 9/27 | Consumer Price Index (all items)(YoY)(AUG) | 9:30 | 5:30 | -- | 5.0% |
| 9/27 | CPIX (Metro & Urban)(MoM)(AUG) | 9:30 | 5:30 | -- | 1.1% |
| 9/27 | CPIX (Metro & Urban)(YoY)(AUG) | 9:30 | 5:30 | -- | 4.9% |
| 9/27 | CPI (core rate)(YoY)(AUG) | 9:30 | 5:30 | -- | 3.8% |
Technical: The USDZAR has rallied to test the 6/23 high at 7.5351. Price currently trades above the upper Bollinger band (daily) a daily close above would favor a breakout and focus would then shift to the 1/16/2004 high at 7.5774. However, daily RSI is very close to overbought and 22 day momentum is turning over and showing bearish divergence. A reversal could encounter support at the 9/18 low at 7.2641.
