The South African Rand (ZAR) weakened against the US Dollar (USD) last week, pressured by a broad-based dollar rally and domestic concerns. The USD strengthened after hotter-than-expected US inflation data dampened hopes of an imminent Federal Reserve rate cut. This dashed investor bets on looser US monetary policy, which would typically weaken the USD and support emerging market currencies like the ZAR.
South Africa’s own inflationary pressures gave slight support to the Rand. Inflation rose to 5.6% in February, trading at the higher spectrum of the South African Reserve Bank’s (SARB) target range and stoking expectations for a potential higher-for-longer monetary policy stance ahead of the bank’s May 30th meeting. This potential for tighter monetary policy in South Africa, compared to a shift anticipated from the Fed, could narrow the interest rate differential between the two countries, likely lending some support to the USDZAR in the near term.
Technical Analysis
The 4-hour chart shows that the USDZAR currency pair is currently trading at R18.82687, hovering around the 61.80% Fibonacci retracement level. The price action appears to be consolidating near the golden ratio, finding support at the 100-SMA (orange line). Notably, the price remains above the 20-SMA (green line) and the 50-SMA, with the 20-SMA recently crossing above the 50-SMA, indicating potential bullish momentum.
With the downward-inclined RSI (37.07) firmly trading below the 50.00 level, the technical analysis highlights the importance of the current support zone around R18.75 (100-SMA and 50.00% Fibonacci retracement). A sustained break below this zone could open the door for further Rand strength towards R18.67484 (38.20% Fibonacci retracement) and R18.57369 (23.60% Fibonacci retracement). Conversely, if the bulls can maintain control and push above the R18.95473 resistance (61.80% Fibonacci retracement), a potential rally towards R19.10299 could be on the cards.
Summary
Market sentiment appears cautious, with the USD finding support due to the global risk-off environment and the ZAR pressured by domestic factors. However, the technical indicators remain somewhat encouraging for the bulls. The price action holding above the key moving averages and the golden ratio suggests a potential for renewed upside momentum if the pair fails to break decisively below the support zone.
Sources: TradingView, Trading Economics, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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