ZAR: Rand Edges Lower Amid Budget Turmoil
USD/ZAR consolidates yesterday's gains, last dealing at 18.3760, with an uptick in the BBDXY Index helping push the rate higher. The rand came under pressure yesterday as Finance Minister Godongwana delivered the 2025 Budget without the support of coalition partners, setting the scene for a heated debate in parliament and raising questions about the future of the governing coalition.
- Bulls look for gains towards 18.7246, the high print of Feb 28. Meanwhile, bears look for a decline towards 17.9992, the 76.4% retracement of the upleg between Dec 12 - Jan 13.
- Godongwana scaled back his tax hike plan and proposed raising the VAT rate by 0.5pp this year and another 0.5pp next year but the Democratic Alliance insisted that they could not back any tax increases.
- The Finance Minister said today that South Africa does not have a budget problem but a political problem and accused the DA of politicking.
- The aggregate BBG Commodity Index has added 0.1% and the precious metals subindex is barely changed on the session. Gold has added ~$8.6/oz this morning.
- SAGB yields sit marginally higher across the curve, with South Africa's 5-year and 10-year breakeven inflation rates last seen at 4.65% and 5.57% respectively.
- South Africa's January mining data will be released at 09:30GMT/11:30SAST, with manufacturing data coming up at 11:00GMT/13:00SAST.
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Historical bullets
BOE: Mann seems to pays more attention to MaPS than models for neutral rate
- Key point for us (in addition to what we learnt in the FT interview) is that she doesn't point to the BOE's updated model-based estimates for equilibrium (2.25-3.75%) but she points to the MaPS survey that has the neutral rate at 3.00-3.50%.
- This suggests that is more in line with her thinking.
- And if she wants to stay restrictive we are 100bp above the upper end of the neutral estimate.
BOE: Mann initial highlights
- "It is not just the immediate policy decision that needs to be communicated. Providing insights on the future path matters for the activist policy maker. Notwithstanding the 50 basis point cut now, structural impediments to achieving the target on a sustained basis are not yet fully purged. The activist policymaker needs to maintain policy rate discipline and restrictiveness even after this immediate decision. This ensures that, as we move through the inflation hump, expectations remain anchored both in the near and longer term."
- "I expect that Bank Rate will average well above the nominal equilibrium rate implied by the estimates set out in the August 2018 Inflation Report. I note that respondents in our Market Participants’ Survey have been consistent in putting this longer-run average at about 3-3½ percent."
- "I chose 50 basis points now, along with continued restrictiveness in the future, and a higher long-term Bank Rate to 1) ‘cut through the noise’, 2) anchor expectations through the inflation hump, and 3) acknowledge structural impediments and macroeconomic volatility in longer term."
USDCAD TECHS: Trading Above Support
- RES 4: 1.5000 Psychological round number
- RES 3: 1.4948 High Mar 2003
- RES 2: 1.4814 High Apr 2003
- RES 1: 1.4600/1.4793 Round number resistance / High Feb 3
- PRICE: 1.4329 @ 08:30 GMT Feb 11
- SUP 1: 1.4270 Low Feb 5
- SUP 2: 1.4261 Low Jan 20 and a key support
- SUP 3: 1.4178 High Nov 6 ‘24
- SUP 4: 1.4120 Low Dec 11
USDCAD is trading closer to last week’s lows. For now, the latest move down appears corrective and the primary uptrend remains intact. The Feb 3 cycle high reinforces and strengthens bullish conditions. The break higher confirmed a resumption of the uptrend and opens 1.4814 next, the Apr 2003 high. Key support to watch lies at 1.4261, the Jan 20 low. A clear breach of this level would alter the picture and signal a reversal.
