The Pound to South African Rand exchange rate gave up its attempts to advance and had fallen to its lowest levels in over a month, 17.3576, as of Tuesday morning. GBP ZAR’s latest selloff is more to do with distaste towards Sterling as UK markets react to news that the formal Brexit process will begin by the end of March 2017.
Pound (GBP) Fails to Hold Ground Despite Strong UK PMIs
Sterling has been thoroughly undermined this week as investors reacted to comments made by UK Prime Minister Theresa May over the weekend.
On Sunday, May confirmed that the UK government was aiming to activate Article 50 and begin the formal Brexit process by the end of March 2017.
She has also continuously hinted that Britain would not attempt to seek post-Brexit access to the European Union’s single market, stating on Tuesday that Britain needs a ‘new deal’.
As British markets rely heavily on the EU’s single market, this news has caused panic among investors.
This news has kept Sterling demand considerably low this week, despite better-than-expected September private sector data in both Manufacturing and Construction prints.
Markit’s Construction PMI published on Tuesday revealed that the sector had unexpectedly returned to growth for the first time in months, scoring 52.3.
Strong South African Rand (ZAR) Held at Bay by Stronger US Dollar
The South African Rand has been waiting for an opportunity to strengthen this week as market confidence in the currency improves and risk-correlated investments become more appealing.
The Rand was weakened last week due to panic in the Eurozone, over a perceived financial crisis with Germany’s Deutsche Bank group. However, as concerns eased and investors began to let go of ‘safe haven’ currencies, the Rand was able to improve.
While the Rand is performing better this week than last, higher confidence in the US Dollar thanks to improvements in US data have weighed on ZAR appeal.
GBP/ZAR Exchange Rate Forecast: Rand to Extend Gains Long-Term?
Brexit concerns continue to weigh on Sterling, preventing it from capitalising on the week’s optimistic UK data. Unless this Brexit-influenced selloff cools, this could even prevent Sterling from advancing if Wednesday’s UK Services and Composite PMIs beat expectations.
Sterling nears levels of key psychological resistance against many currencies however, and as such its defences may strengthen and keep the Rand from making further advances.
Rand investors may also react in response to Wednesday’s South African Standard Bank PMI, or Friday’s foreign exchange reserves figures.
One of the factors behind the Rand’s recent increase in confidence has been a bullish currency forecast from Renaissance Capital Ltd (or RenCap).
RenCap believes the Rand could strengthen by as much as 20-30% against the US Dollar over the next two years as high yields attract investors towards the Rand. Improvements in South Africa’s growth and current account figures have also lightened the risk of ZAR investment, improving its appeal in recent months.