Weekly Outlook: South African Rand Continues To Range, Looks For Hope

Full Story: The USDZAR currency pair continued to remain in a range bound scenario, although steadily keeping pressure on the South African rand leg.  Establishing support at the 7.6000 figure, price action upside seems to be capped by the 7.7000 topside resistance.  However, keeping the range picture, bearish undertones are likely to lead to a retest of the 7.6250 (23.6 percent fib from the 9/18-9/25 bull move).  A failure to hold would kick-in the notion of a bottom side cap at the 7.6000 figure with comparative topside being capped at the 7.7281 weekly high.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

 Keeping in tune with the technical, the weeks data is likely to further notions of rising inflation in the economy, boosting prospects for an October rate hike of 50 basis points.  More hawkish, the decision would be far more extreme considering some dovishly biased whispers heard at the end of the summer months.  The initial report should offer more for the bullish speculator as consensus expectations are for a continuation of price increases at the producer level.  Estimated to have increased by 0.8 percent, the report will likely further central bank hawkishness as higher costs will be pushed onto the consumer.  Rising 1.7 percent in the month of July, the increase is expected to come in higher by 0.8 percent.  Subsequently, the increase is likely to boost the annualized comparison to an 8.5 percent rate compared to the 8.1 percent seen in the previous month.  Additionally confirming of inflation will be the months M3 money supply report.  Higher flows of domestic money chasing after fewer goods will likely spur rate of inflation, witnessed in the July report.  For the month, there was a 21.15 percent surge compared to more major industrialized nations that are experiencing half that amount of capital flow.  As a result, the boosted figure will garner a lot of attention as it remains above double digits.  These two reports will feed nicely into the week ending surveys including trade balance, Investec PMI and the SACOB business confidence survey.  With a narrower trade balance on the return of global demand for South African based exports, business confidence is looking optimistic.  Although dipping marginally in the last month, and printing the lowest figure since November of 2004, expectations remain high of a rebound back to the two year average of 100 as the economy is poised to continue on supported strength.  Confirmation of the notion will likely to ascertained on released of the Investec PMI survey.  Although declining through the 63.2 July high, the survey continues to remain supported by individual components still at elevated levels.

Regional data was additionally optimistic last week after traders were privy to a handful of data signaling strength for the economy.  Retail sales figures were supported, rising 9.1 percent after increasing by a 10.6 percent clip annually in the month of April.  The increase likely coincides with higher employment prospects as the unemployment picture shrank on the month.  For March, the unemployment rate narrowed to 25.6 percent from a whopping 26.7 percent in the month.  Higher employment prospects are likely to have fed waning hesitance of consumers to spend income throughout the month.  The notion has boosted consumer prices according to the August figure.  Although coming in line with consensus figures, the report still remains high compared to the 5 percent seen in the previous month as the survey posted a 5.4 percent increase on the annualized comparison.  Subsequently, the core rate was additionally buoyed ahead of the 3.8 percent pace of consumer prices.  With all that said, the weeks downsides came in the form of the current account balance report.  Rising to 6.1 percent of overall gross domestic product, the current account deficit grew to 101.7B rand in the second quarter.  Although slightly narrower than the previous 6.4 percent expected, the figure continues to remain relatively high and has been blamed for the three year low hit on the week as concerns emerge of lower growth at the expense of a wider deficit.

Economic Releases for September 28-October 5