The USDZAR is trading at the lowest level since March 2020 as investors react to positive sentiment about the South African rand. It is trading at 16.2028, which is a few pips above the day’s low of 16.2025.
The USDZAR pair is reacting to the interest rate decisions by the Fed and the South African central bank. As was widely anticipated, the two banks left interest rates unchanged in their meetings this week. The Fed signalled that rates will remain this low for the next few years.
In its decision yesterday, the South African central bank left the main repo rate unchanged at 3.50%.The bank also downgraded their previous forecast for the country’s economy. It now sees the economy falling by 8.2% this year, down from the previous forecast of a 7.3% contraction. That will be the worst annual contraction of the South African economy in decades.
But the bank’s forecast was better than the 11.3% decline forecast by the Organisation for Economic Co-Operation and Development (OECD). In its report, the OECD said that the South African economy will have a tough time recovering because of the frequent power cuts by Eskom that make companies uncompetitive.
Meanwhile, analysts at Absa bank believe that the USDZAR will continue falling considering that most of the issues have already been priced-in. The bank’s analyst said:
“We think the SARB (South African Reserve Bank) is close to the end of its cutting cycle, so we think the rand goes to 15.75 by the end of the year because all of the bad news is priced in, and we think we are in the recovery phase.”
USDZAR technical outlook
The USDZAR is trading at 16.2028. On the daily chart, we see that the price has managed to move below the Support 1 of the Woodie Pivot points at 16.3688, which was the lowest level in June. The price has also fallen below the 50% Fibonacci retracement level. It is also below the 25-day and 14-day exponential moving averages.
Therefore, the price is likely to continue falling as bears target the next support at 15.900, which is the S2 of the pivot points. On the flip side, a move above the 50% retracement at 16.6498 will invalidate this trend.
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USD/ZAR technical chart
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