Fundamental: Looking over number of fundamentals indicators issued over the previous week, there was little consistency behind an improvement or weakening in the broader economy. On the other hand, a clear division allowed for a strong report of the consumer sector and slowing on the business side. <For Full Story See Below>
Full Story: Though the data coming out ofSouth Africa has been mixed in the past week, the rand found no problem in working off a steady bid. In two months time, the USDZAR has rallied over 18 percent with hardly a breather. However, spot action in the last five days has brought with it the biggest retracement in the entire uptrend with a 4.2 percent move in the rands favor. Now with oil prices stabilizing and the central bank expected to raise rates, the market will decide whether this move is a transient correction or the start of a new trend.
Looking over number of fundamentals indicators issued over the previous week, there was little consistency behind an improvement or weakening in the broader economy. On the other hand, a clear division allowed for a strong report of the consumer sector and slowing on the business side. The first report to hit the market set a bearish tone for the currency. The SACOB business confidence indicator for September dropped 1.3 points to 97.7 from the month before as the steady drop in the rand increased import costs and produced fears that the contributions to inflation would lead to further rate hikes. This matched the worst reading for the sentiment gauge since July of 2004 and shifted a greater burden on the manufacturing activity read due later to outperform. The August factory production figure reported just the opposite however, contracting for the second month by 0.7 percent led by a slowdown in auto production. While the business side of the economy was feeling the pinch of higher rates and unfavorable exchange rates, the consumer had not yet reported the pressure in July. Retail sales for the month grew 9.7 percent over the year, beating both expectations and the previous months report. The increase in spending came joined a read showing credit growth accelerated a record 25 percent in August despite the Reserve Banks decision to hike rates the month before. This puts the central bank in a position to respond to aged retail data and hike rates or take the business numbers as a leading indicator of a natural correction.
For the days ahead, there is only one scheduled event that should prove market moving. Thursdays interest rate decision from the SARB is expected to yield another 50 basis point hike to 8.50 percent in an attempt to further cool rampant consumer spending and contain inflation that is currently beyond many officials comfort levels. Policy members hope the increase in lending rates will help control spending that has driven the consumer price index to 3.9 percent and boosted imports such that the current account deficit now sits at a 24-year high. The strength of the rand in the coming days will also depend on where commodities go from here. Gold prices have yet to show promising signs of a rebound, but heating geo-political risks and OPECs efforts to raise oil prices could lead to a firm bid under the precious metal.
Economic Releases for October 12 October 18
| Date | Event | GMT | EST | Consensus | Previous |
| Oct 12 | SARB Monetary Policy Committee Meeting | -- | -- | -- | -- |
| Oct 12 | SARB Interest Rate Decision (OCT) | -- | -- | 8.50% | 8.00% |
Technical: We mentioned last week that Daily oscillators are overbought and exhibit bearish divergence? The pair reversed last Wednesday and has fallen over 3,700 pips. Support from the 38.2% of 6.7018-7.9798 / 6/23 high is just above at 7.4919/7.5351. A break below there encounters the previous 4th wave extreme at 7.2641. 240 minute RSI is just above oversold territory. Keep in mind though that the indicator tends to stay extreme for a while before the actual reversal.
