A determined move higher by the British pound in mid-May trade has got markets talking about the prospect of a GBP-ZAR trading consistently above 19.00.

The pound to rand exchange rate has this month, to date, reached a best level of 19.0528 - this represents the highest conversion rate in history for the pair according to our records.

There could be further woes ahead for the ZAR as the below graphs shows. The break above the resistance zone at 18.5000 is significant as it has encouraged more traders to bet on the prospect of the upside trend that brought us into 2015 resuming once more.

Should a break higher occur we don’t have the answers as to how far the pound sterling could run owing to the lack of precedent set at these levels. If sterling can at least hold current levels then look for 18.50 to become the new level of support below which the ZAR will struggle to push the pound.

The problem facing those holding rand and looking to buy sterling is that the broader British pound exchange rate complex appears ready to make an advance. What will be of note is how sterling performs against the likes of the New Zealand dollar, Canadian dollar and Australian dollar.

I make this observation as the ZAR sits in the same ‘commodity currency’ basket within which the NZD, AUD and CAD also occupy. GBP does broadly tend to trend in a similar fashion against all four of these currencies who rely on raw material exports to a significant degree.

There are certainly signs that the GBP is due to break higher against the New Zealand dollar which may be about to reach the end of a protracted period of outperformance. There are also forecasts suggesting sterling is to outperform the Aussie dollar and Canadian dollar.

Underlying the potential for sterling gains is the prospect of an interest rate rise at the Bank of England within the course of the next year. With Britain adding an impressive number of extra jobs to its economy owing to strong economic fundamentals we see it as a matter of time before the Bank has to act.

When the timing of the rate rise becomes clearer the GBP is expected to outperform. All this leaves the South African rand looking vulnerable. What is clear that the potential of GBP-ZAR hitting 20 in 2015 is purely a function of sterling strength at this stage.

Local Factors Mildly ZAR Supportive

As mentioned, the Rand is largely being driven by external events, but there are some local issues to watch. "Local factors remain rather inconsequential in the short-term outlook of our markets. But the mining data has pleasantly surprised, growing a faster than expected 18.8% y/y," notes John Cairns at RMB.

The huge number mostly relates to the base effects of the platinum sector strikes, but Cairns is encouraged that both mining and manufacturing did better than expected in March. The good news extends to Medupi, which is now producing 700 megawatts.