The USDZAR pair is navigating through a mix of domestic and international economic signals, starting the week on a softer note against the backdrop of fluctuating global market sentiments. The South African rand appreciated to around R18.7 per USD, reaching its highest level against the US Dollar (USD) since early February. This strength is primarily driven by rising gold prices and marginally positive Q4 2023 GDP growth of 0.1%.
However, concerns remain regarding inflation, which continues to climb, reaching 5.3% in January and tethering around the higher end of the South African Reserve Bank’s (SARB) target range. Governor Lesetja Kganyago has emphasized that interest rate cuts are contingent upon inflation returning to the target midpoint of 4.5%.
Meanwhile, the USD is facing headwinds. The global dollar index hovers near mid-January lows as investors await key US inflation data this week, which will influence Federal Reserve (Fed) monetary policy decisions. Recent mixed US jobs data and dovish comments from Fed Chair Jerome Powell have tempered expectations of imminent rate cuts. Markets currently anticipate a potential Fed rate cut in June.
Technical Analysis
The USDZAR price currently sits at R18.71603, attempting to break above a descending channel. The price action trades below the downward-sloping 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), with a recent bearish crossover of the 20-SMA and 50-SMA below the 100-SMA. With the price attempting an ascent above the channel yet constrained by these moving averages, a short-term bearish sentiment looms.
Therefore, short-term trading opportunities could arise towards the initial support at the last swing low of R18.57009 should the attempted break above the channel falter. Should this support give way under significant selling pressure, the major support at R18.43523 beckons. Conversely, an upward thrust above the breakout level, accentuated by a bullish RSI recovery from oversold conditions to 38.40, could pivot the focus towards the resistance at R18.86880. A conclusive surge past this barrier may expose the next resistance levels at R18.99497 and R19.11773.
Summary
The USDZAR pair’s immediate trajectory is intricately tied to unfolding economic narratives, both locally and abroad. The rand’s resilience, underpinned by domestic economic indicators and global gold price dynamics, faces a test against the dollar’s reaction to forthcoming US inflation data and Federal Reserve cues. Technical indicators suggest a bearish short-term bias, with potential for reversal should the pair convincingly breach key resistance levels.
Sources: TradingView, Trading Economics, Dow Jones Newswire, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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