The South African Rand (ZAR) staged a remarkable comeback against the US Dollar (USD) on Thursday. This impressive reversal was fueled by a combination of factors. Firstly, market participants adopted a cautious approach ahead of the crucial US GDP data release, leading to a subdued Dollar. Secondly, South Africa’s producer price inflation (PPI) data came in line with expectations, easing concerns about domestic inflationary pressures. This, along with the recent interest rate hold by the South African Reserve Bank (SARB), provided some support to the Rand.
However, the Rand’s upside remains capped by several headwinds. The uncertain domestic political landscape ahead of the May elections and the possibility of US interest rates staying elevated for longer could hinder further Rand gains. Additionally, a deterioration in South Africa’s terms of trade could add further pressure to the currency.
Technical Analysis
Despite Thursday’s surge, the USDZAR currency pair remains on shaky technical ground. The price action is currently trading at R18.98406, exhibiting a slight downward bias. The recent break below the 20-SMA (green line) and 50-SMA (blue line) suggests a potential shift in short-term momentum towards the downside. However, the price remains positioned above the 100-SMA (orange line), indicating some underlying bullish support. The 20-SMA currently trades above both the 50-SMA and 100-SMA, which is a mixed technical signal.
The downward-sloping RSI (38.03) sits comfortably below the 50.00 level, further reinforcing the potential for a bearish continuation. A sustained push below the 100-SMA (R18.78887) could trigger further losses towards the R18.57122 and R18.41019 support levels in the short term.
However, a failure to maintain downward momentum could cause the price to find support at the R19.07200 level. A confirmed break above this initial resistance could lead to a potential test of the R19.25919 level, with major resistance residing at R19.38279.
Summary
The USDZAR price action remains clouded, caught between the pull of a potentially stronger USD due to US economic data and the Rand’s recent rebound. Technically, a confirmed break below the 100-SMA (R18.78887) strengthens the bearish outlook, with potential downside targets at R18.57122 and R18.41019. Conversely, a break above the R19.07200 resistance could signal a bullish reversal, with targets at R19.25919 and R19.38279.
Sources: TradingView, Trading Economics, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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