GBPZAR: pound to rand rate whipsaws near 5-year high as PMIs disappoint
The pound to rand (GBPZAR) pair is struggling to find direction close to its all-time level of 25.8365 as the market digests news from the UK and South Africa. The most important news is that South Africa has started to reopen its economy while the lockdown in the UK seems to be continuing.
South Africa PMI sinks
The biggest news GBPZAR today was that the South Africa PMI sunk to an all-time low in April. According to Markit and Standard Investment bank, businesses faced a record lengthening delivery times, higher input costs, and a record output and new orders. These businesses suffered immensely by the South African government’s decision to start a national lockdown.
The PMI came in at 35.1, down from 44.5 in March. In a statement, David Owe of Markit said:
“The plunge in the South Africa PMI was testament to the impact that the nationwide lockdown has had on the economy. In fact, at 35.1, the headline index may be an overestimate of business performance in April.”
Still, analysts are optimistic that the South African economy will recover slightly as companies restart their operations. Also, they are optimistic that the record government stimulus will help to cushion the economy in the near term.
The report by Markit found that many companies slashed their employees in May as costs rose because of higher import prices.
UK construction PMI falls
Across the pond, activity in the construction sector in the UK dropped to a record low of 8.2 from a high of 39.3 in March. According to Markit, this deterioration was spread across the segments, with house building falling to 7.3. Commercial and civil engineering activities declined to 7.7 and 14.6 respectively. This happened since most people in the construction sector remained at home in April.
The plunge in the South Africa PMI was testament to the impact that the nationwide lockdown has had on the economy. In fact, at 35.1, the headline index may be an overestimate of business performance in April. In a statement, Duncun Brock said:
“April’s figures delivered more worrying news for fragile construction businesses as the effects of the coronavirus continued to ripple across supply chains, devastating all productivity in its wake.”
On the daily chart, we see that the GBPZAR pair found important resistance at the 23.7545 level. This price is the highest it has been in years. Also, on the daily chart, the price has stagnated near this level since the beginning of April. Therefore, it seems like bulls are finding it difficult to test new highs while bears are not fully in control. Therefore, although it is too early to judge, I expect the pair to break out lower as bears attempt to test the 23.6% retracement at 22.1378.
On the flip side, a move above 23.7545 will signal that there are still buyers in the market. This will lead to a continuation of the bullish trend.