- U.S. to South African bond yield spreads widen.
- Stronger than anticipated U.S. financial information buoy upside bias.
- USD/ZAR bulls take out 15.0000 deal with.
ZAR FUNDAMENTAL BACKDROP
THE REFLATION TRADE DISCUSSION IS BACK!
Markets reacted earlier at the moment after 10-year U.S. Treasury yields popped (see graphic beneath) leading to a transfer away from the South African rand because the U.S. dollar firmed – lowering the attractiveness of the carry commerce. The 10-year treasury yield briefly breached the 1.5% degree final seen in June 2021, however has since dissipated reflecting in a extra subdued USD/ZAR worth. Reflation talks are again on the desk whereas U.S. information is probably not on the identical web page as employment is weak, manufacturing is throttled leaning in direction of stagflation (increased inflation together with stagnant progress).
TREASURY 10-YEAR SPREAD – SA vs U.S.
Whereas commodity costs are rebounding, this was not sufficient to halt at the moment’s surge however as yields soothe the USD/ZAR pair will doubtless transfer in tandem. An extra headwind dealing with rand bulls got here by way of the U.S. sturdy items information which printed nicely above forecasts (see calendar beneath). A optimistic for the U.S. financial system and a subsequent bullish issue for the dollar.
Supply: DailyFX economic calendar
SOUTH AFRICAN TREASURY CONCERNS
Quite a few key staff on the South African treasury have not too long ago resigned which is trigger for concern for traders. Most of the above held senior positions and whereas Director-Normal Dondo Mogajane endeavored to ease these fears forward of the newly appointed Finance Ministers medium-term funds speech, treasury shall be beneath intense scrutiny – check with my latest tweet for extra info.
USD/ZAR DAILY CHART
Chart ready by Warren Venketas, IG
After a robust begin to the week for USD bulls, the rand has since pulled again echoing a fall in yields as talked about above. The every day candle now strikes in direction of a illustration of a doji candle which suggests indecision by market contributors. The Relative Strength Index (RSI) is nearing overbought ranges however nonetheless has room to run which may see additional USD/ZAR upside.
Rejection on the 15.1000 deal with could also be examined near-term however fundamentals are actually the important thing this week with many excessive affect information releases by each the U.S. and South Africa.
— Written by Warren Venketas for DailyFX.com
Contact and observe Warren on Twitter: @WVenketas