South African rand squeeze is on as sentiment sours
July 19 (Reuters) -A weaker rand in early Friday trade, down 0.5% versus the dollar at 18.3470, a combination of a dovish tilt to the latest South African central bank's unchanged rate decision, and risk sentiment soured after Donald Trump accepted the nomination as the Republican presidential candidate.
Fallout from Thursday's South African Reserve Bank (SARB) policy meeting has knocked the rand despite the widely expected unchanged decision.
Two members of the monetary policy committee voted for a 25 basis-point rate cut and this coupled with falling inflation expectations could up the ante for a rate cut before the year is out.
The SARB expects inflation to average 4.9% this year, down from a 5.1% projection made at the May MPC meeting. The bank also expects inflation to steady around the mid-point of its 3.0%-6.0% target range over the medium-term.
USD/ZAR has cleared resistance in the 18.2700-18.2800 area and removal of the daily kijun Ichimoku line could trigger a squeeze back to levels around 18.50-18.60. The peaked at 18.6650 in early July.
There may be scope for a rate cut before the year is out, but the rand will continue to benefit from a healthy yield advantage over the dollar. However, it will remain vulnerable to external factors and U.S. monetary policy developments.
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(Peter Stoneham is a Reuters market analyst. The views expressed are his own)
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