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USDZAR: can rand maintain the momentum as coronavirus cases surge?


The USDZAR was little changed as the South African rand remained steady against the USD. The pair is trading at 17.6100, which is close to its two-month low of 17.5050.

South Africa reopens further

The strength of the South African rand came a day after President Cyril Ramaphosa announced a further easing of the country. The new easing will start on June 1, and it will allow more people to go back to work.

Still, this decision presents a major risk. Just last week, the health minister said that the country’s reopening did not meet the guidelines by the World Health Organisation. That is partly because the country has not done adequate testing and the fact that the number of new cases has been on an upward trend.

The total number of confirmed cases has surged to more than 22,000. Also, the number of new cases reported on Sunday was more than 1,240. That was higher than the 1,218 that was reported on Saturday and the 803 that was reported the previous day. Therefore, the current reopening seems ill-informed.

S&P warning

The USDZAR remained steady even after the S&P Global warned about the frailty of the South African economy. In a statement, the rating agency said that the country would spend more time before growth returns. The report said:

“South Africa’s fiscal position remains weak, and a Covid-related shrinking economy, lower government revenues, and a large fiscal package have further exacerbated existing fiscal problems.”

The report cited the fact that the fiscal budget deficit will continue to soar even as the economy contracts by more than 4.5% this year.

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USDZAR technical outlook

The USDZAR pair is trading at 17.6100. On the daily chart, the price has moved below the lower line of the previous triangle pattern. Similarly, the price has crossed the important 23.6% Fibonacci retracement level and below the 50-day exponential moving average. Therefore, there is a possibility that the downward trend will continue as bears attempt to test the 38.2% retracement at 17.2490.

On the flip side, a move above 18.00 will invalidate this prediction. This price is an important psychological level and is also above the 50-day EMA. It is also along the 23.6% retracement.

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