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RAND TALKING POINTS
- RAND is influenced by global factors.
Commodity prices are helping the South African rand rise.
The chart shows USD/ZAR consolidating…waiting for momentum.
USD/ZAR FUNDAMENTAL BACKDROP
The South African rand weakened this week after sentiment risks last week pushed emerging market currencies against the dollar, sterling and euro. Rand-bound commodity exports also remained relatively high, further adding to the upside.
Fears of a global recession are likely to resurface this week as growth forecasts drop, making riskier currencies like the South African rand less attractive to investors – when safer assets are preferred. While China continues to face economic growth problems and disruptive COVID-19 policies, the rand is not in the best position. Nonetheless, the rand is currently one of four currencies that have appreciated against the dollar year-to-date (see table below).
Source: Reuters
In my opinion, the dollar will gain a boost throughout 2022, as the dollar’s fundamental tailwinds clearly prevail during this time. South Africa may be in a tightening cycle, but the local economy is far from being able to cope with persistent interest rate deviations relative to the US. However, Chinese demand for commodities could help stabilize the rand if they recover to a certain level.
On the local front, rolling blackouts have increased the frequency of hotels, hurt South African companies and were reflected in the lowest levels of foreign borrowing in South African bonds in a decade. Falling investor confidence is bad for RAND, and local utility Eskom needs to find a solution quickly.
technical analysis
USD/ZAR DAILY CHART
Chart prepared by Warren Venketas, IG
Daily USD/ZAR price action shows the pair sandwiched between the recent June swing low at 15.7165 and the key psychological resistance zone at 16.0000. The rand has been at the mercy of risk-on & risk-off sentiment of recent and will continue to play to this tune going froward as the world grapples with recession fears, inflation, the war in Ukraine and monetary policy guidance. Uncertainty in many of these spheres is reflected by the Relative Strength Index (RSI) which sits around the 50 mark (indicative of market indecision). While we wait for a fundamental catalyst, I believe we will continue to see this range bound move between the aforementioned support and resistance zones.
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Graphic created by Warren Venketas at IG
Daily USD/ZAR price action shows the pair sandwiched between the recent June swing low of 15.7165 and key psychological resistance at 16.0000. The rand has been swayed by risk appetite and risk aversion of late, and will continue to do so as the world grapples with recession fears, inflation, the war in Ukraine and monetary policy guidelines. Uncertainty in many of these areas is reflected in the Relative Strength Index (RSI) hovering around the 50 mark (an indicator of market indecision). While we wait for fundamental catalysts, I believe we will continue to see range-bound action between the aforementioned support and resistance areas.