The Monetary Policy Committee (MPC) yet again voted to cut the repo rate down by 50 basis points. South Africa's interest rate is now 3.75% levels not seen since the '70s. A move geared to provide relief to indebted consumers and businesses as they navigate the shock of the coronavirus. 68 central banks in the world have all adjusted their policies due to the economic slowdown caused by the global lockdowns.
South Africa's economy is expected to shrink by 4.9% in 2020, adding more pressure to the rand which was struggling before the pandemic. The current strength we see on the rand is from the easing of restrictions in the country. However, this will be short-lived as other major economies also start to reopen the rand will take longer to bounce back.
Emerging markets took the longest to recover in the last recession the same can be expected this time around. The SARB has limited tools at its disposal to support the economy. As developed countries pump trillionsinto their economy South Africa does not have the same ability after being downgraded to junk status by Moody's.
The chart below shows the rand has broken below 18 with a move down to 17 possible. The updated count has a triangle pattern for wave (B), and we are now in the final leg lower in wave (C) before we push higher. The yellow zone is our wave iv pullback of a lower degree with one more push to 17.21851 and 17.06229 as the critical support level for our bullish count. The Fibonacci extension (A) and (B) are at 16.30687.
Res: 18.00000; 18.35368; 18.63300
Sup: 17.21851; 17.00000; 16.50000
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