The South African rand has weakened against the US dollar in recent weeks, pressured by a stronger dollar and ongoing concerns over the domestic economy. The return of intensive power cuts and persistent logistical constraints continue to threaten South Africa’s growth. The Q3 GDP contraction by 0.2%, worse than expected, reflects challenges in agriculture, manufacturing, and construction. A PMI survey indicates flatlining private sector activity, with supply chain disruptions adding to economic woes.
The South African Reserve Bank (SARB) decided to keep interest rates on hold for the third consecutive time at 8.25% at its latest meeting on November 23rd while warning that it stands ready to act to ensure inflation remains under control. Headline inflation quickened at its fastest pace in five months in October to 5.9%, up from 5.4% in September, close to the top of the central bank’s 3%-6% target range.
Technical Analysis
The daily chart shows that the USDZAR is currently trading slightly above key SMAs despite the lower-than-expected GDP decline in South Africa. Price action is trading above the 20-SMA (green line), 50-SMA (blue line) and 100-SMA (orange line), suggesting the presence of bullish momentum. The RSI is flat, suggesting a potential for continued price stability.
Short-term trading opportunities could exist towards the resistance level at the 18.86590 price level should the bulls sustain a push above the SMAs. A break above the initial resistance could confirm the bullish momentum, likely bringing the triangle’s resistance at 18.95745 into play.
However, short-term trading opportunities could arise towards the initial support at 18.70996 should the bears sustain a push below the SMAs. A break below the 18.70996 level would likely bring the 18.61765 support level into play in the short term.
Summary
USDZAR is likely to remain rangebound in the near term as the bulls and bears vie for control. However, the pair could be supported by a weaker US dollar, while a stronger US dollar could weigh on the pair.
Technically, USDZAR is trading above key SMAs, and the RSI is flat, suggesting that the bulls are in control of the market, with sustained bullish momentum likely to be tested by the 18.96590 resistance level. However, a break in either direction could be due, and short-term trading opportunities could exist towards the 18.70996 support level should the break below SMAs materialize.
Sources: TradingView, Trading Economics, Statistics South Africa, Reuters, Business Recorder.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.
