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GBPZAR: Pound to Rand Rate Spikes As SARB Cuts Rates By 100Bps

ZAR

The Pound to Rand exchange rate has shot up this Tuesday after the South African Reserve Bank (SARB) delivered an unexpected 100 bps rate cut to send the repo rates down to their lowest levels on record. In setting the repo rate at a new low of 4.25%, the SARB is hoping to save the South African economy from recession. South Africa currently holds the most significant number of coronavirus cases in Africa. It is struggling to enforce a lockdown on an economy which was already in dire straits before the coronavirus pandemic. 

In delivering the rate cut, the SARB noted that it now projects growth at -6.1%, which is a far grimmer projection than the -0.2% it had projected at its last rate decision meeting in March 2020. The SARB expects a rebound to 2.2% and 2.7% in 2021 and 2022 respectively. 

The Pound to Rand rate presently stands at 23.04832, sending the GBPZAR higher by 2.8% on the week. The Rand is now one of the worst-performing emerging market currencies of 2020 and analysts are not ruling out another rate cut in the coming months. 

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Technical Outlook for GBPZAR

The Pound to Rand outlook is for the GBPZAR to continue its advance towards the recently tested highs at 23.35124. This price level is also the prior peak of March 16, 2016. A break above the area sets the GBPZAR on course to test the 23.67455 price area, where peaks had formed last week and also on January 25 2016. Further advance leads to a push towards 24.42730, above which the previous all-time highs could come into focus. 

On the flip side, if traders decide to take profit from the extended uptrend move which commenced in 2011 with a resumption in 2017, then we may see a pullback towards 22.56688. Further decline towards 51.0847 is a far-reaching possibility. 

Long-term, the GBPZAR needs to establish higher highs beyond the all-time high price of 25.16254 for the uptrend to continue. Inability to force a higher top could indicate that the uptrend has peaked, opening the door for a long-term correction.

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