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Rand Tumbles On Report South Africa Seeks To Nationalize Central Bank

The South African rand has tumbled following a report confirming recent speculation that South Africa’s ruling African National Congress will propose that the country's central bank, the Reserve Bank be nationalized and wholly owned by the state, according to three people familiar with the discussions quoted by Bloomberg.

  • S. AFRICA'S ANC SAID TO PROPOSE CENTRAL BANK BE STATE-OWNED
  • S. AFRICA'S CENTRAL BANK CURRENTLY HAS PRIVATE SHAREHOLDERS
  • S. AFRICA CENTRAL BANK'S SHAREHOLDERS HAVE NO SAY ON POLICY

Bloomberg adds that the proposal which will surely have negative consequences on the country's financial stability was approved in plenary session of the party’s policy conference taking place in Johannesburg. However, the decision still to be ratified at the ANC electoral conference in December, so nothing is imminent. By way of background, Bloomberg reminds us that the central bank’s currently has about 600 private shareholders who have no say over the setting of monetary policy.

Furthermore, Citi cautions that it would not chase the move as "these headlines are citing unnamed sources and have not been confirmed official. We will publish the details when released. Indeed such a proposal seems at odds with the last we heard from the ANC. The Treasurer General Mkhize spoke on Tuesday saying that most members of the ANC favor an independent central bank."

For now, however, the news has impacted the ZAR, with the USDZAR spiking as much as 2.1% intraday.

From a technical perspective, short-term USD/ZAR bulls have now set their sights on the long-term average line at 13.52 after powering through the April downtrend this week; Bloomberg's chartist writes that the strength of the broader downtrend may be tested this week as key pivot lines come under the spotlight. The USDZAR Pair broke the April downtrend on Monday and produced a higher high on Tuesday, endorsing the bullish breakout action. The pair is also severing resistance at 13.14 and 13.21, which were important near-term swing points.

In other words, Next critical level and focus is at 13.52, the 233-DMA (number tied to Fibonacci sequence), which has been a multi- year pivot level (see long-term chart)