Pound to rand (GBP/ZAR) slips after strong SA data: buy the dip

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Written on Aug 10, 2023

Reading time 2 minutes

The GBP/ZAR pair dropped after the latest South Africa manufacturing data.
Manufacturing production bounced back in June despite the power shortage.
The pair will likely bounce back in the next few days.

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The pound to ZAR exchange rate retreated slightly after the relatively strong South Africa manufacturing production data. The GBP/ZAR pair dropped to a low of 23.96 on Wednesday, which was lower than this month’s high of 24.28.

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South African manufacturing activity

The GBP/ZAR and USD/ZAR pairs dropped slightly after the latest South African manufacturing data. According to the country’s manufacturing production jumped by 1.2% in June. This increase was better than the median estimate of 0.7%.

The manufacturing production rose from 2.4% in May to 5.5% on a YoY basis. Also, this increase was better than the estimated 3.0%. These numbers mean that the troubled manufacturing sector is making some strides.

South Africa’s manufacturing production has been hit by the energy sector, with some analysts warning that power outages could continue for a long time.

Additional data published this week showed that mining output continued to worsen in June. Mine output and sales in the past 12 months to May dropped by 4.6% and 4.2%, respectively. Output now sits about 7.8% below the pandemic level.

On a positive side, the decline in the production of platinum and palladium has boosted prices of these metals. South Africa produces 70-75% of the world’s platinum.

In all this, South Africa’s economic difficulties will continue for a while. Analysts expect that the economy will expand by 0.3% this year while the unemployment rate will remain at an elevated level.

GBP/ZAR price forecast

GBPZAR chart by TradingView

The GBP/ZAR price drifted downwards after the strong South Africa manufacturing data. On the 4H chart, the pair has moved above the 25-period and 50-period exponential moving averages (EMA).

At the same time, the two lines of the MACD have formed a bearish crossover while the Relative Strength Index (RSI) has retreated below the overbought level. It is sitting slightly above the neutral point of 50.

Therefore, I suspect that the pound to rand pair will resume the bullish trend ahead of the upcoming UK GDP data scheduled for Friday. If this happens, the next level to watch will be this week’s high of 24.28.