Rand pares losses after SARB slashes growth forecast & almost cuts rates

The South African rand weakened as much as 1.1% after the central bank kept interest rates on hold, with two of the five MPC members calling for a 25 basis point cut.  The main catalysts for the weaker rand stemmed from the updated economic forecasts which calls for a larger than expected slowdown in the first quarter, possibly a contraction.  The South African Central Bank (SARB) 2019 GDP growth forecast was cut from 1.3% to 1.0%, while the 2020 and 2021 targets were left unchanged at 1.8% and 2.0% respectively.  With inflation near the mid-point of the SARB’s target range, and the Quarterly Projection Model (QPM) expecting to see improvements over the next few years, the central bank can be free to cut rates if they see further signs of weakness with the economy.

The South African rand’s decline tested some long-term resistance levels following the rate decision but has since pulled back. Price action on the USD/ZAR daily chart shows that a bullish pennant pattern could be forming.  Much of the last two months saw price consolidate following the February surge which does not provide the ideal flagpole part of the pattern.  If we see a continuation of the bullish move, 14.8300 could provide an initial upside target.  To the downside, the 200-day SMA provides initial support at 14.2359.

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