The South African Rand (ZAR) is under significant pressure following the country’s general election on Wednesday. Early results suggest the ruling African National Congress (ANC) may lose its parliamentary majority for the first time since gaining power in 1994. While the ANC is still expected to be the largest party, falling below 50% would necessitate forming a coalition government, potentially with populist parties advocating for nationalization policies. This scenario has spooked investors, leading to a Rand sell-off.
Adding to the uncertainty is the upcoming South African Reserve Bank (SARB) interest rate decision later today. The central bank is expected to maintain its current stance in the fight against inflation, but the political turmoil might influence its decision-making. Overall, market sentiment towards the Rand is negative due to the uncertain political landscape and potential for policy shifts.
Technical Analysis
The USDZAR price currently sits at R18.65511. The recent surge broke above the 20-SMA (green), 50-SMA (blue), and 100-SMA (orange), indicating a potential upward trend. The 20-SMA trading slightly above the other two SMAs reinforces this bullish momentum.
The Relative Strength Index (RSI) sits at 69.77, exceeding overbought territory. This suggests a potential retracement in the near future. If the uptrend persists, the initial resistance level lies at R18.83067, followed by R19.10360.
However, a break below the crucial support level of R18.37285, backed by significant trading volume, could expose the Rand to further depreciation. This bearish scenario might target R18.17208 and even R18.02689 in the short term.
Summary
The USDZAR price action reflects the current uncertainty in South Africa. While a technical uptrend is underway, the overbought RSI reading indicates a possible correction. The outcome of the ongoing vote count and the SARB’s interest rate decision will be crucial in determining Rand’s future trajectory.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire, MT Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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