The USDZAR currency pair is experiencing a volatile session, with the South African Rand (ZAR) initially flat but now finding some strength against the US Dollar (USD). This shift can be attributed to the disappointing South African manufacturing PMI data released earlier today. The seasonally adjusted Absa PMI fell to 49.2, signifying a contraction in the manufacturing sector for the first time since September 2023. This weak data point raises concerns about the health of the South African economy, putting pressure on the ZAR.
However, the broader USD outlook remains a key driver. The US dollar is finding support from upbeat US data, including positive manufacturing growth and a potential delay in Fed rate cuts. This could limit the Rand’s advance. Additionally, rising US Treasury yields continue to attract investors to the USD, potentially outweighing the domestic headwinds for the ZAR.
Technical Analysis
The 4-hour chart shows that the USDZAR price action took a sharp turn lower today, reflecting the weak PMI data. The technicals shifted from bullish to bearish after a break below the critical 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line). This bearish breakdown is further confirmed by the downward-sloping RSI (42.06), which recently dipped below the neutral 50.00 level.
The immediate support zone lies between R18.71314 (23.60% Fibonacci retracement) and R18.61336 (significant support level). A confirmed decline below this zone could extend losses towards R18.50380.
However, if the bulls can manage a reversal at the current support zone and push the price action above the 38.20% Fibonacci retracement level (R18.94732), it could signal a potential short-term recovery. A sustained move above this level, with significant volume, could even bring the 50.00% Fibonacci retracement level (R18.94732) and the 61.80% Fibonacci retracement level (R19.05199) into play.
Summary
The USDZAR is biased towards the downside in the near term, supported by a weak South African manufacturing PMI despite a broadly strong USD. The technical breakdown below key SMAs strengthens the bearish case. However, there’s a chance for a short-term reversal if the Rand finds support and climbs above the 38.20% Fibonacci retracement level.
Sources: TradingView, Trading Economics, Reuters, Bureau for Economic Research (BER).
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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