The South African Rand (ZAR) is likely to see continued support in the near term, buoyed by a combination of external and domestic factors. On the one hand, the US dollar is facing headwinds due to recent data suggesting a cooling US labour market. Weekly jobless claims in the US unexpectedly soared to 8-month highs, reinforcing expectations of potential rate cuts by the Federal Reserve later this year. This has weakened the dollar against other currencies, including the South African rand.
Also, the South African Reserve Bank (SARB) is anticipated to maintain interest rates at their current high levels for an extended period due to persisting inflation concerns. The SARB’s recent Monetary Policy Review highlighted that the monetary policy is likely to remain unchanged this year, potentially boosting the rand’s appeal against the greenback. The markets are also keeping a watchful eye on upcoming national elections in South Africa, as political uncertainty could exacerbate currency volatility and limit further rand appreciation.
Technical Analysis
The 4-hour chart shows that the USDZAR is currently trading at R18.40610, hovering slightly lower within a significant demand zone (support area). The price action suggests potential dominance by bears following a 0.6% decline in the previous session. This is further reinforced by the downward-sloping price action recently breaching 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.
The downward-sloping Relative Strength Index (RSI) at 37.43, comfortably below the midline (50.00), suggests bearish momentum. A sustained push below the supply zone could bring the R18.17208 support level into focus in the coming sessions. A decisive break below R18.17208, accompanied by significant trading volume, could expose the R17.99825 price level in the short term.
However, a failure to break decisively below the current demand zone (around R18.37) could see the initial level of resistance at R18.67421 come into play. A confirmed breakout above this resistance could open doors for further upside towards R18.93841 and R19.26608.
Summary
The USDZAR price action reflects a mix of technical and fundamental factors. The recent weakness in the US dollar creates a potential upside scenario for the rand. However, the SARB’s hawkish stance and upcoming South African elections introduce countervailing forces. The 4-hour chart suggests a potential downside move if bears can maintain pressure and push the price below the current demand zone. Conversely, a bullish breakout above the resistance area could signal further appreciation for the rand.
Sources: TradingView, Trading Economics, Reuters, Forex Live.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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