The South African Rand (ZAR) has found some support recently, trading nearly flat against the US Dollar (USD) after positive domestic data and a cautious global environment. South Africa’s manufacturing sector PMI rose above the 50 mark, indicating expansion for the first time in months. Additionally, vehicle sales improved in April, suggesting a potential recovery in certain sectors of the economy.
However, the outlook remains cautiously optimistic. Inflation remains above the South African Reserve Bank’s target range, and the Federal Reserve’s decision to maintain interest rates has investors on edge. The upcoming US jobs data on Friday could significantly impact the USD and, consequently, the USDZAR exchange rate. Historically, the Rand weakens on strong US data due to potential interest rate hikes by the Fed, which strengthen the USD.
Technical Analysis
The 4-hour chart shows that the USDZAR is currently trading at R18.55, exhibiting a bullish consolidation pattern within a falling wedge. The price action sits slightly above the downward-sloping 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line). This recent break below the key moving averages suggests a potential downside bias.
The RSI (35.65) remains comfortably below 50, indicating bearish momentum. A sustained push above the falling wedge, however, could trigger a bullish breakout targeting R18.78 initially. Further upside could lead to R19.07 and major resistance at R19.38.
On the downside, a failure to hold above the wedge could bring the R18.41 support level into play. A confirmed break below R18.41, with significant volume, could expose R18.26 and R18.10 as potential downside targets.
Summary
Market sentiment appears mixed. The positive domestic data in South Africa is countered by global uncertainties surrounding inflation and interest rates. The upcoming US jobs data will be a key driver of sentiment in the short term. A strong report could trigger risk aversion and strengthen the USD, potentially weakening the ZAR.
Sources: TradingView, Trading Economics, Reuters, CNBC.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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