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Over the course of this year, the Rand has faced a formidable adversary in the form of the U.S. Dollar as the USDZAR currency pair closes in on its third consecutive week of gains. This week, a notable surge of 2.25% positions it for its best week in the new year, propelled by the Dollar’s unyielding strength.
Recalibrating their expectations, traders have scaled back bets on imminent rate cuts to 60%, a significant retreat from the near 80% figure at the week’s commencement, according to the CME FedWatch Tool.
This shift is attributed to a modest uptick in U.S. inflation and Federal Reserve officials advocating an unrushed approach to policy changes until inflation confidently aligns with the 2% target. Concurrently, heightened Middle East tensions amplify concerns of supply chain disruptions, prompting investors to seek refuge in the safe-haven Dollar, now soaring at a one-month high.
Technical
The USDZAR currency pair has undergone a noteworthy transformation this year, as a decisive shift above the 100-day moving average marked a departure from the preceding downtrend.
The downtrend originated from the 19.13438 level, a robust resistance point within an ascending channel. However, the pair encountered a formidable support level at 18.10879, hailing from November’s foundation. This level exhibited resilience during a retest, aligning intriguingly with oversold RSI conditions.
The subsequent rebound propelled the pair past the 61.80% Fibonacci Retracement Golden Ratio, backed by robust upside volumes. With the 19.13438 resistance level now looming tantalizingly close, it emerges as a potential short-term focal point amid sustained upside momentum. Nevertheless, caution beckons, as overbought RSI conditions signal a possible reversal at the resistance level. In the event of a downturn, attention might pivot to the Golden Ratio, presenting itself as a discernible marker for potential downside movements.
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Summary
The South African Rand succumbed to the U.S. Dollar’s dominance, with the USDZAR currency pair poised for its best week this year, escalating by 2.25%. Traders recalibrated expectations amid reduced bets on rate cuts, dropping from nearly 80% to 60%, influenced by U.S. inflation dynamics and Fed speeches. Technically, the pair faces a pivotal juncture near the 19.13438 resistance, with overbought RSI signalling a potential reversal.
Sources: CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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