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USD/ZAR Drops After SARB Leaves Rates Unchanged

Trade ideas

The USDZAR is trading lower after the South African Reserve Bank left interest rates unchanged at 6.50%. There had been divided consensus among analysts, with majority projecting a 25bps cut in the repo rate. The decision can therefore be seen as a hawkish surprise and the South African Rand is reacting accordingly.

The USDZAR is presently trading at 14.63452, which is the 50% Fibonacci retracement level on the weekly chart, traced from the swing high of January 10, 2016 to the swing low of February 25, 2018.

Outlook for USDZAR

At this price level, the USDZAR is testing multi-year support levels formed by highs acting in role reversal, seen at 13 Nov 2016, Dec 23, 2018 and most recently, on March 24 this year.

The price activity is in the midst of an up channel which extends from January 17 till date. There is still room for downside on this channel, and a break of the current long-term, multi-year horizontal support could open the door for completion of the price leg down to the channel’s lower border.

Further break of the channel’s lower border will open the door to the downside targets shown on the chart at 13.79495 and 13.01538.

On the flip side, a failure of the downside break attempt at current levels could see a return to 15.48824 (61.8% Fibonacci level) and above this area, 15.85285 (May 22, 2016 high).

These are all possible long term moves. It must also be noted that reduction of interest rates in developed markets such as the US, is leading a return to riskier, emerging market assets. The South African Rand could benefit from this divergence in the medium-term and long-term.