The USDZAR currency pair has been a focal point of recent market dynamics, reflecting significant shifts in the value of the South African Rand against the U.S. Dollar. The Rand has experienced a notable depreciation of nearly 5% against the resilient Greenback year-to-date, driven by various factors.
The Dollar’s strength, buoyed by robust U.S. fundamentals such as a strong labour market and an uptick in inflation, has contributed to the setback faced by the South African Rand. The recent blowout Nonfarm Payroll and an unexpected rise in U.S. inflation to 3.1% in January prompted markets to reassess expectations of future U.S. rate cuts, reinforcing the anticipation of higher interest rates for a prolonged period. According to the CME FedWatch Tool, markets are now pricing in a 22% chance of a rate cut in May, down from 51% a month ago. In contrast, South Africa’s inflation, which came in lower than expected at 5.3%, has further weighed down on the Rand.
Technical
The USDZAR currency pair has experienced a significant uptrend, with the pair surging past the 100-day moving average, indicative of short-term bullish momentum.
A robust support level at 18.78770 bolstered bullish sentiment, attracting traders’ attention. This level serves as a key point of interest for traders, given the market’s bullish reaction to the level on prior occasions. Overbought RSI conditions suggest caution as the pair tests resistance at 19.20855, formed from a previous selloff.
While a full retest of resistance is underway, given the upside momentum, the prevailing overbought RSI could signal a potential slowdown in upside momentum. In case of a reversal, the 100-day moving average could serve as a potential downside target. However, if a breakout above the resistance level is sustained, the 23.60% Fibonacci Extension level could serve as the next point of interest to the upside.
Summary
The USDZAR currency pair has seen significant gains, reflecting the Rand’s 5% depreciation against the Dollar year-to-date. The bullish sentiment prevails, with the pair surging past the 100-day moving average from robust support at 18.78770. However, caution is warranted as overbought RSI conditions signal a potential slowdown in the momentum near resistance at 19.20855.
Sources: Statistics South Africa, CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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