- Over the last month, the USD/ZAR currency pair gained more than 1%, consistently bumping up against the 16.80 resistance level
- The 16.00 support level is still far off and seems pretty secure and instead levels closer to 16.30-16.50 will probably dictate where the pair heads in the near-term
- For the dollar to maintain its strength, we would need to see firm US yields, higher oil prices, softer South African inflation, and a general 'risk-off' mood. These factors would help keep its upward path going.
The US dollar gained on the South African rand today, its third straight day of increases. This hasn’t happened since early September.
The USD/ZAR pair has climbed over 1% in the past month. It’s kept a positive trend even after hitting familiar resistance points.
The 16.80 level has been a major barrier in the second half of the year. Market observers are now watching to see if conditions will allow the pair to finally break past that resistance.
Why the Dollar Has the Upper Hand
A few things are giving the dollar its edge right now. One major factor is the Federal Reserve’s monetary policy. Market expectations, according to the CME FedWatch tool, suggest there’s almost a 90% chance of an interest rate hike in December.
Higher US interest rates usually make the dollar more appealing, which can push down emerging market currencies like the rand.
Gold prices also matter a lot, since gold is South Africa’s main export. Back in January, when gold was above $5,000, the rand traded around 16.05, almost its strongest level since June 2022. But since then, gold prices have dropped below $4,000, taking away that support for the rand.
Can USD/ZAR Break Through the 16.80 Resistance Mark?
Regarding the potential for USD/ZAR to break through the 16.80 resistance, a significant move upward would likely require more than just technical momentum. It would necessitate a combination of increased global risk aversion and a clear divergence in monetary policy.
If 16.80 breaks and holds, the dollar might push toward 16.90 and other key levels. For a true break past this resistance, buying interest needs to stay strong for more than one session, ideally with a clear daily close above 16.80.
Gold prices are at an important juncture, making the next few days significant. Economic news includes the Federal Reserve’s policy decision Wednesday, followed by US Q3 GDP and PCE inflation data on Thursday.
However, there are cautionary signals. For example TD Securities has suggested USD/ZAR rallies could offer selling opportunities, particularly if gold holds above $4,000 and equity market sentiment remains strong.
How Secure Is 16.00 Support?
The 16.00 support level seems pretty solid. It’s currently well below present prices and hasn’t really been tested in recent months. Closer support sits around 16.30-16.50, where buyers have stepped in during past pullbacks.
The 200-day moving average, currently in the mid-16.30s, has also been a key reference for medium-term buyers. For the rest of the year, 16.00 should hold steady unless risk sentiment drops a lot or South Africa’s economic fundamentals unexpectedly change.
If 16.30 breaks, a sharper move down becomes more likely. The gap to 16.00, however, suggests it’s more a long-term floor than an immediate concern.
The dollar has strengthened, backed by strong US yields. High oil prices are also dragging down the rand since South Africa imports so much of its energy. Both factors are pushing the pair towards its third daily gain.
That level has stopped the pair from moving higher many times since mid-year. If the dollar manages to break and stay above it, that would show stronger momentum and suggest it could climb even further.
It seems pretty secure because support levels nearby, for instance, those around 16.30-16.50, have held up well. For the pair to fall much lower, we would need a big change in global risk sentiment or in South Africa’s own economic situation.