The USDZAR soared 2.5% this Wednesday afternoon after South African Finance Minister Tito Mboweni painted a grim outlook for the economy in his inaugural Medium Term Budget Policy Statement (MTBPS).
Mboweni’s MTBPS highlighted what many had already feared: the South African economy is in a downward spiral. The South African economy has been plagued in the last decade by low growth, a dearth of jobs and allegations of widespread corruption for which former President Jacob Zuma is standing trial.
GDP growth, which had been forecasted at 1.5% in February, has been downgraded to 0.5%. Unemployment is rampant and is currently at 29.1% and revenue collection from taxes continues to experience shortfalls.
South African Airlines and Eskom, two of the biggest state-owned enterprises, are to receive bailouts running into billions of Rands after years of flounderign performance.
The Finance Minister has highlighted in the MTBPS that the SA economy needs to stop spending more than it is earning. He is also proposing measures to improve revenue collection and is also proposing that the government divests from the failing enterprises with time.
Moody’s is expected to release their latest ratings on the South African economy and it is widely believed that a downgrade is coming.
Outlook for USDZAR
The South African Rand (ZAR) has taken a major hit, with the USDZAR now trading at 15.00195 as at the time of writing, soaring from 14.60265 as at the time the MTPBS commenced. At present levels, the USDZAR is testing the highs of June 6 and is also at the neckline of the double top pattern seen in the first week of October.
A break of this resistance area will test the price area that extends from 15.28863 (2nd top in double top) to 15.38216 (1st top in pattern). Above this price area, continuous upward momentum could take the USDZAR to 15.46849 (ripple top of August 12, 20 and 29).
On the flip side, rejection of price at the 15.01524 price area (former neckline of double top in early October) could send price action down to the 14.72746 price level (previous high of March 28 in role reversal and low of October 11). Further down, support is seen at 14.51163 (previous lows of September 13 and October 28).
Intraday momentum however remains bullish.