Fundamental: The rand gained on the dollar during the past week as traders anticipated and watched as the Reserve Bank of South Africa raised rates by a whopping 50 basis points <For Full Story See Below>
Full Story: The rand gained on the dollar during the past week as traders anticipated and watched as the Reserve Bank of <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />South Africa raised rates by a whopping 50 basis points. Set in place in order to curb inflation the rate hikes sparked a momentous rally that send the USDZAR currency pair through key technical levels, before finding a supported bottom just below the 7.5000 figure. After pulling back slightly, selling is likely to continue for the pair, just below the 7.6000 handle.
With last weeks data being rand positive, the upcoming schedule looks to add to the notion of higher rates in an expanding economy. The sole report for the week, the nations consumer price index, is expected to show inflationary pressures that will likely justify further rate tightening measures by the central bank. Last month, consumer prices jumped by a 5.4 percent increase, dampening consumer confidence. However, spending continues to mount with the most recent retail sales report underpinning the notion that consumers are overextending their debt load in order to compensate for the increase in spending. Subsequently, a lower domestic currency is additionally responsible for the uptick in inflation as a lower valued currency has boosted global foreign demand for South African based goods, adding to overall growth. As a result, all three components are expected to remain high with the core figure anticipated to give central bankers a chill down their spine, rising by 3.9 percent in the previous reading. Higher marks at this level are likely to be in line with already forecasted conditions by Governor Mboweni and company, lending to speculation of another possible 50 point rate hike.
Positive suggestions were plentiful in the South African economy as traders looked at base level data in finding a direction in the underlying. Starting off the week right was the retail sales constant for the month of July. Already rising by 9.1 percent in the month of June, the July figure of 9.7 percent supports the notion that consumers are definitely contributing to the overall economy. However, a concern has emerged that the current rate of spending may be supported by overextended credit spending and not real spending through cash. The notion creates a problem for the economy as further rate increases are likely to cut off spending, causing more problems than solutions in the long run. Nonetheless, the figure beats the consensus estimate of 9 percent and preceded a revised manufacturing production figure. In the month of August, manufacturing production actually slowed by 0.7 percent, in line with the previous decline of 0.7 percent. However, the prior months report was revised higher by 0.4 percent, lessening the blow of two consecutive months of manufacturing sluggishness. The monthly comparison translated into a 4.2 percent rise for the sector with the July report being revised higher to a 5.9 percent rate. Ultimately, both reports added to the overall decision by the central bank to raise rates by 50 basis points and continue to keep policy makers in a hawkish mood. Following the highly anticipated decision, SARB officials released further suggestions of another round of tightening which may come as soon as before the year end.
Economic Releases for October 18 October 25
| Date | Event | GMT | EST | Consensus | Previous |
| 10/25 | Consumer Price Index (all items) (MoM)(SEP) | 9:30 | 5:30 | -- | 0.8% |
| 10/25 | Consumer Price Index (all items)(YoY)(SEP) | 9:30 | 5:30 | -- | 5.4% |
| 10/25 | CPIX (Metro & Urban)(MoM)(SEP) | 9:30 | 5:30 | -- | 0.5% |
| 10/25 | CPIX (Metro & Urban)(YoY)(SEP) | 9:30 | 5:30 | -- | 5.0% |
| 10/25 | CPI Core rate (YoY)(SEP) | 9:30 | 5:30 | -- | 3.9% |
Technical: The USDZAR bounced at the former resistance zone at 7.4433/7.4800 in what is likely the 2nd wave of a 3 wave corrective move lower. The 3rd wave of the correction may be underway with todays decline. A break below 7.4325 would confirm that that is the case. Support on a break lower targets the previous 4th extreme at 7.2641. A 5 month trendline drawn through 6.0263 and 6.7338 is at 7.1936 today (happens to be the 61.8% of 6.7050-7.9798). Only a break below there begins to suggest that the trend is down.
