Rand chart highlights kneejerk reaction to Q4 GDP data

Key findings for Q4 2020 q/q GDP

South African fourth quarter Gross Domestic Product (GDP) data came in ahead of consensus estimates, with quarter on quarter (q/q) GDP growth realized at 6.3% annualized (est. 5% q/q).

A summary for fourth quarter GDP is as follows:

• The manufacturing industry increased at a rate 21,1%, with 9 of the 10 manufacturing divisions reporting positive growth rates over the period
• The trade, catering and accommodation industry increased at a rate of 9,8%
• The transport, storage and communication industry increased at a rate of 6,7%
• The construction industry increased at a rate of 11,2%
• The personal services industry increased at a rate of 4,8%
• The agriculture, forestry and fishing industry increased at a rate of 5,9%

Key findings for Full Year GDP in 2020

FY 2020 GDP contracted by 7% over the period, which compares to GDP growth of 0.2% in FY19.

The largest negative contributors to the contraction in annual GDP were as follows:

• Manufacturing which declined by -11,6%
• Trade, catering and accommodation, which declined by 9,1%
• Transport, storage and communication which declined by 14,8%.

ZAR Kneejerk reaction to Q4 GDP

The ZAR has seen the start of the day greeted with renewed strength in line with its emerging market peers. The above 30min chart of the USD/ZAR shows how that ZAR strength was accelerated in the half an hour after the better than expected Q4 GDP data. Unfortunately much of those initial ZAR gains have since been unwound, as the domestic currency realigns movements with macro rather than domestic influences in play.

USD/ZAR – technical analysis

The USD/ZAR has now traded to the 15.50 resistance target suggested in the Technical Tuesday newsletter (available here).

It is around this level (15.50) we are now seeing a bearish price reversal (circled red) starting to form (Harami). Should today’s (9 March 2020) candle remain red and close below the halfway mark of the preceding long bodied green candle, the bearish price reversal would be confirmed. The USD/ZAR also carries an overbought reading at present, which would further support the bearish price reversal suggestions. These suggestions are that a move back towards the 14.90 level could follow.

Traders who find short entry on a confirmation of a USD/ZAR price reversal, might use a close above 15.65 as a stop loss consideration. In the event that the bearish assumptions fail with a close above the 15.65 resistance level, a new upside breakout scenario for the USD/ZAR would instead need to be assessed.

In summary

• Q4 GDP showed annualized q/q growth of 6.3% ahead of consensus
• Real FY20 GDP contraction of 7% realized
• The manufacturing industry was the largest contributor to q/q GDP growth in the fourth quarter, but also the largest negative contributor to annual GDP contraction realized in 2020
• The rand’s initial reaction to the data was positive, although has since given up some of the short term gains
• Technical analysis view of the USD/ZAR shows a bearish price reversal forming (not yet complete) at resistance, whilst in overbought territory