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.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya