The pound to rand pair rose today as the market received weak PMI data from the UK and South Africa. Traders are also concerned about the health of the South African economy, which is going through a serious crisis.
South Africa was in trouble even before the current Coronavirus crisis. The country’s external debt was rising at a fast rate and the political uncertainties made it almost impossible for the president to do his job.
The country was also facing with systemic problems as its too-big-to fail companies like Eskom and South African Airlines got into trouble. The country was forced to raise money needed to bail out these companies. It seems like it will need more money to bail out South African Airlines because the company is now bleeding cash.
The mining sector, which is an important part of the South Africa economy was also in trouble. In recent years, the cost of mining has jumped as the government has imposed high taxes. Employees too have been demanding higher wages.
The UK too has not been immune. The country is going through a bitter divorce with the European Union and its prime minister is suffering from Coronavirus. If the status quo remains, there is a likelihood that the country will leave without a deal.
According to Markit, the two countries are ailing. The services PMI in the UK dropped to 34.5 from the previous 53.2. The composite PMI dropped from 53.0 to 35.0. Meanwhile, in South Africa, the Standard Bank PMI dropped from 48.4 to 44.5.
The rand has declined by more than 34.5% against the dollar and 25% against the pound this year.
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Pound to Rand: GBPZAR Technical Analysis
The pound to rand pair rose to 23.16, which is the highest level since January 2016. It crossed the important resistance of 23.00. Using technical indicators on the four-hour chart, we see that the pair is trading above the 25-day and 50-day exponential moving averages. The average directional index, which is used as a measure of strength, soared to its highest level since March. The likely scenario is where the pair continues with the upward trend. On the flipside, if the pair reverses, the next level to watch will be 22.2040, which is the previous swing high.
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