The South African Rand (ZAR) faces headwinds against a resurgent US Dollar (USD). Hawkish comments from Federal Reserve Chair Jerome Powell and robust US economic data have bolstered the USD. The Fed remains committed to fighting inflation, with expectations of no rate cuts this year gaining traction. Minneapolis Fed President Neel Kashkari and New York Fed President John Williams echoed this sentiment, highlighting the potential for further rate hikes if inflationary pressures persist.
The South African Reserve Bank (SARB) is expected to take a more cautious approach, with limited rate cuts anticipated in 2024. Governor Lesetja Kganyago remains concerned about inflation, which, although easing slightly, sits above the SARB’s target range. Domestic growth concerns and upcoming national elections further cloud Rand’s outlook.
Technical Analysis
The 4-hour shows that the USDZAR is currently trading at R19.16911. Despite a recent pullback, the technicals favour the USD in the near term. The downward-sloping price action sits above all the major moving averages [20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line)]. Although the 20-SMA recently crossed above the 50-SMA and 100-SMA in a bullish technical crossover, a sustained push lower could negate this signal.
The RSI (63.34) trades above the 50.00 level, indicating some room for a potential pullback before encountering oversold territory. A failure to maintain upward momentum could see the price revisit the initial support level of R19.02632. A decisive break below this level, accompanied by significant volume, could expose the Rand to further depreciation, potentially targeting R18.78887.
Conversely, a break above the initial resistance at R19.38279 could signal a short-term bullish reversal. However, further upside would require a confirmed break above the major resistance level at R19.54996.
Summary
The USDZAR outlook leans towards the USD strengthening in the near term. The dovish SARB stance and a robust USD, backed by hawkish Fed policy signals, create a headwind for the Rand. The technical indicators on the 4-hour chart hint at a potential pullback, with a key support level of R19.02632.
Sources: TradingView, Trading Economics, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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