The South African Rand (ZAR) has experienced some volatility following the release of the US Federal Reserve’s meeting minutes. The hawkish tone hinting at extended periods of higher interest rates in the US strengthened the Dollar (USD) and weakened the ZAR. This comes after a strong run for the Rand, reaching its highest level against the Dollar since July 2023, on expectations of a tighter African National Congress (ANC) grip on parliament in the upcoming elections.
The upcoming elections on May 29th remain a key factor influencing the ZAR. Should the ANC secure a parliamentary majority or a coalition with a market-friendly partner, the Rand could see further appreciation. However, a hung parliament or a coalition with left-leaning parties could trigger capital flight and weaken the ZAR. Markets remain cautious, and the ZAR’s undervaluation is likely to persist until the post-election dust settles.
Technical Analysis
The USDZAR currency pair is currently trading at R18.48312. The price action recently experienced a bullish breakout from a descending channel pattern. This breakout is accompanied by a bullish crossover of the 20-SMA (green line) above the 50-SMA (blue line) and 100-SMA (orange line), indicating a potential shift in momentum.
The RSI (70.23) currently sits in overbought territory. If the uptrend persists, the initial resistance level to watch is R18.67421. A confirmed breakout above this level could open the door for a test of R18.93841.
However, overbought conditions on the RSI suggest a potential retracement. A pullback below the SMAs could bring the initial support level of R18.37285 into play. A decisive break below this level, accompanied by significant selling volume, could expose the R18.17208 and R18.02689 support levels in the short term.
Summary
The hawkish Fed stance and upcoming South African elections are injecting volatility into the currency pair. Technically, the pair exhibits potential bullish momentum above key moving averages, with resistance levels at R18.67421 and R18.93841 being critical. However, the overbought RSI signals a possible retracement, with support levels at R18.37285, R18.17208, and R18.02689, providing potential bearish targets.
Sources: TradingView, MoneyWeb, News24, Federal Reserve.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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