The South African Rand (ZAR) has firmed slightly against the US Dollar (USD) after recent US labour market data indicated softening conditions. This has rekindled expectations of potential Federal Reserve rate cuts later in 2024, putting downward pressure on the greenback.
However, the South African Reserve Bank (SARB) is anticipated to maintain its current hawkish stance due to persistent inflationary pressures. The SARB’s recent Monetary Policy Review suggests rates will likely remain unchanged this year, and analysts believe the central bank may delay cuts further due to upcoming national elections, aiming to avoid exacerbating currency volatility in a politically uncertain environment.
Technical Analysis
The 4-hour chart shows that the USDZAR currency pair is currently trading at R18.38, with the price action consolidating within a significant supply zone. The bears are attempting to extend their dominance after three consecutive sessions of declines. The downward-sloping price action recently broke below the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), with the 20-SMA and 50-SMA recently falling below the 100-SMA. This confluence of technical indicators suggests a potential downtrend.
The RSI (35.50) sits comfortably below the 50.00 level, indicating bearish momentum. A sustained push below the current support zone (R18.37) could see the R18.17 support level come into play in the coming sessions. A decisive break below this level, accompanied by significant volume, could open the door for a test of R17.99.
However, a failure to break below the support zone could signal a potential reversal. The initial resistance level sits at R18.67. A confirmed break above this level could lead to a test of R19.38 and R19.27.
Summary
The USDZAR currency pair faces a crucial juncture. A confirmed break below the current support zone (R18.37) could see the Rand weaken further in the near term. Conversely, a failure to break below this level, coupled with a rise above R18.67, could indicate a potential bullish reversal. The upcoming US inflation data release on Wednesday will be a key market mover, with a hotter-than-expected print potentially reigniting dollar strength and dampening hopes of a near-term Fed pivot.
Sources: TradingView, Trading Economics, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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