The USDZAR currency pair has been a focal point in recent weeks as it navigates through a landscape of shifting economic dynamics.
Over the past three weeks, the South African Rand has displayed remarkable strength against the U.S. Dollar, spurred primarily by remarks from Federal Reserve Chair Jerome Powell hinting at potential rate cuts in the United States. Despite a surprisingly high U.S. inflation rate of 3.2%, markets continue to anticipate a Federal Reserve interest rate cut in June, with a 59% likelihood priced in.
However, the Rand’s initial strength waned as local economic data revealed concerning figures. January saw a 3.3% year-on-year decline in total mining output, coupled with a substantial 12.7% drop in gold production. Furthermore, South Africa’s headline inflation rose to 5.3%, surpassing the South African Reserve Bank’s target range midpoint of 4.5%. Governor Lesetja Kganyago’s cautionary remarks suggest a potential need for prolonged higher interest rates to combat persistent inflation, potentially impacting the Rand’s trajectory. As traders await the Federal Reserve’s upcoming interest rate decision, the USDZAR pair remains in focus, poised for further developments in the global monetary landscape.
Technical
The USDZAR currency pair has recently experienced a shift in momentum, with indications pointing towards a short-term downtrend. This trend is evident as the pair dipped below its 100-day moving average, signalling a potential reversal in its previous upward trajectory.
Sellers entered the market at the 19.39086 level, coinciding with overbought conditions according to the Relative Strength Index (RSI), prompting a retreat in prices. However, support was found at the 18.50228 level, where oversold RSI conditions prevailed, indicating a possible reversal in sentiment.
Bullish sentiment seems to be resurfacing as the pair retraces from the support level, with buyers stepping back into the market. Currently, the pair has retraced to the 38.20% Fibonacci Retracement level, acting as an intermediate resistance. A retest of the 18.50228 support level is likely if selling pressures persist. Conversely, a breakout above the 38.20% level, accompanied by high trading volume, could signal intensifying buying pressures, potentially targeting the 50% Fibonacci Retracement level to the upside.
Summary
With shifting economic dynamics and technical indicators suggesting a short-term downtrend, the USDZAR pair remains volatile. Despite initial strength, the Rand faces challenges from local economic woes. Traders await the Federal Reserve’s decision for further insights into the pair’s trajectory, with critical support at 18.50228.
Sources: Statistics South Africa, CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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