The USDZAR pair declined by more than 1.10% as the overall US dollar weakness continued even in the emerging markets. The South African rand is trading at its highest level against the US dollar in eight weeks.
While most countries have been releasing weak economic data, most analysts believe that a turning point is close. For example, the manufacturing and service PMI data released last week showed that business activity was starting to rise in most countries. The activities will improve as more countries reopen their economies.
South Africa has been opening up its economy. According to Cyril Ramaphosa, most people will be able to go back to work in the next few weeks.
Nonetheless, there are risks that the South African government is making a mistake because the number of infections has been rising. Also, the government has not done enough testing, which poses a significant risk.
Also, the country’s fiscal situation is not good especially after the government launched its massive stimulus package. According to S&P Global, that decision will lead to a significant debt load, which will threaten the economy, which was in trouble even before the crisis started. In a statement, an analyst at Peregrine Treasury told Reuters:
“The optimistic recovery narrative is holding within markets, keeping the dollar subdued and seeing the rand remain on a stable footing following last week’s rally.”
The USDZAR pair is trading at 17.4012, which is the lowest it has been since March 23. Yesterday, we looked at the daily chart and worried whether the rand can keep the pace. Looking at the weekly chart, we see that the pair is below the 23.6% Fibonacci retracement level and is slowly approaching the 38.2% retracement.
The price is also above the 50-day and 100-day exponential moving averages. Therefore, while the pair may continue falling, I expect it to find some important support at the 38.2% Fib level of 17.2490. A move below that level will see bears attempt to target the 50% Fib level of 16.6396.
On the flip side, a move above the 23.6% retracement level of 18.00 will invalidate this trend.