The South African Rand is depreciating against most of its peers, and against the US Dollar (USDZAR), the rand was down by 1.18% at the time of writing. The reason for the move lower in the South African Rand is most likely yesterday’s Fitch downgrade of Eskom, the large and state-owned South African electricity provider. According to Eskom, they generate about 95% of all electricity used in South Africa and about 45% of the total African production. by it a key player in the South African economy.
Fitch cut the credit rating of the firm into deeper “Junk” status, from ccc to ccc-. Over the next ten years, the South African government has pledged to support the troubled company by injecting about $15.2 billion into the company, but that would only amount to half of the debt-services costs. The problems at the company are seen as the most significant risk to the South African economy and could explain why South African Rand has traded lower.
Technically, the USDZAR turned higher in mid-September, and is now approaching the 2019 high of 15.50, and also overbought levels per the Relative strength index (RSI-14). Around the 2019 high, we also find an upward sloping trendline that trades via the March and June highs. The line USDZAR has stopped around that level in the past, and I suspect that the upward trending line and the 2019 high might acts as a take profit level.
At this stage it is too early to know if the price will be capped at the 2019-high but if it does the price might be able to move down to the median price line around the 15.01 level. In the short-term the trend will also remain upwards above the 15.01 level, and short-term corrections towards this level will probably be met by buyers targeting 2019 high.Download our latest quarterly market outlookfor our longer-term trade ideas.
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