USDZAR: Can the South African Rand Maintain the Momentum?
The USDZAR is down for the second consecutive day. The pair is down by 0.55% a day after it fell by more than 0.60%. The South African rand has also gained against other currencies like the euro and sterling.
Last week, the South African rand reversed gains and declined sharply after the country’s central bank decision. SARB left interest rate decision unchanged and analysts are pricing-in no other rate cut this year. Indeed, the bank’s governor has said that the bank’s rate cuts will not help to adequately solve the country’s problems.
Recent data from South Africa have been relatively mixed. On Wednesday last week, data showed that retail sales dropped by 9% in July. That was a bigger decline than the previous month’s 7.2% decline. Analysts were expecting a modest decline of 5.0%. Another data showed that mining production declined by 9.1% in July. That was slightly better than the 21.2% decline that analysts were expecting.
Meanwhile, the country’s current account declined to a deficit of more than 103 billion rand in the second quarter while the economy contracted by 51.0% in the June quarter. This decline puts the South African economy in a technical recession.
USDZAR technical outlook
The daily chart shows that the USDZAR has been relatively volatile in the past few months. The pair reached an all-time high of 19.2 in March and then tumbled to 16.3270. This price was slightly below the 50% Fibonacci retracement level. The pair then recovered and found a strong resistance at 17.50 and then it came back to the first support. In July, the USD/ZAR rose but again, found resistance at 17.77. This month, it dropped below the original support at 16.32.
Yesterday, the price formed a bearish shooting star pattern and is now along the 50-day and 25-day exponential moving averages. Therefore, I suspect that the rand strength will remain for the next few days as bears attempt to test the next support at 16.62, which is along the 50% Fibonacci retracement level.
On the flip side, a break above yesterday’s high of 17.23 will invalidate this prediction. This price is also along the descending green trendline.