The USDZAR pair presents a curious case after appreciating over 0.33% during the session but is on course for a week of losses after declining over 0.2% this week. Despite the broader dollar’s recent gains, the South African rand (ZAR) is finding support on Friday morning. This counterintuitive move stems from two key factors: dovish signals from the US Federal Reserve and positive anticipation surrounding South Africa’s upcoming PMI data.
Firstly, comments from New York Fed President John Williams suggesting potential rate cuts later in 2024 have weakened the dollar. This dovish stance stands in contrast to the South African Reserve Bank (SARB), which has maintained a hawkish tone, suggesting the potential for further interest rate hikes in South Africa. This divergence in monetary policy expectations could be contributing to the ZAR’s relative strength.
Secondly, the recently released Absa PMI survey is also fostering cautious optimism. A reading of 51.7 for February, up from the 43.6 registered in January, signals improving economic health in South Africa, potentially attracting investors and buoying the ZAR. However, ongoing concerns surrounding public entities and the upcoming election continue to cast a shadow over the South African economy, limiting the ZAR’s upside potential.
Technical
The 4-hour chart presents a critical juncture for the USDZAR as it attempts to cement a position above a significant supply zone and the 20-SMA, currently trading at R19.23033. The currency pair’s recent manoeuvres above the 20-SMA (green line) amidst a downward-sloping trend of the same average hint at a potential reversal of fortunes. The juxtaposition of the upward-sloping 50-SMA (blue line) and 100-SMA (orange line) below the 20-SMA adds to this narrative, suggesting a battleground for short-term direction. The RSI, now above the neutral 50 mark at 53.78, indicates emerging bullish momentum.
Should the pair maintain its stance above the critical 23.60% Fibonacci retracement level, the immediate resistance at R19.27473 beckons. A decisive push beyond this, particularly on significant trading volume, could pave the way to R19.39086 and then R19.46977. Failure to hold above R19.27473 could lead to a retracement towards the initial support at R19.07785. A confirmed break below this level, coupled with high volume, could signal renewed bearish momentum, potentially targeting the 50.00% and 61.80% Fibonacci retracement levels (R18.97467 and R18.87648, respectively).
Summary
The current market sentiment aligns with a ‘Cautionary Outlook’ as investors monitor economic indicators, the political landscape post-election, and potential rate cuts. Dovish remarks from central banks contribute to a weakening dollar, impacting its strength against the South African rand. The upcoming data and broader market sentiment towards the US Dollar will likely influence the direction of the pair in the near term.
Sources: TradingView, Trading Economics, CNBC, Dow Jones Newswire, Reuters, ABSA.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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