South African Rand Outlook: ZAR Strengthens Despite Ongoing Insecurity

UNREST CONTINUES WITH KWAZULU NATA AT THE FOREFRONT

South African Rand Outlook: ZAR Strengthens Despite Ongoing Insecurity

Initial deployments of 2,500 soldiers were unsuccessful in stopping looting and destruction at malls, vehicles and transport systems. The latest request for assistance could result in ten times the number of troops being deployed to hot spots around Gauteng or KwaZulu-Natal. Although it is difficult to estimate the damage, estimates put it at R16 billion ($343 millions).

KNOW YOUR KEY TECHNICAL LEVELS OVER THE WEEK AGO

The USD/ZAR daily charts shows price action trading in an apparent ascending channel. It bounces between the lower and upper bounds. The latest bounce off resistance was just below the 200 simple moving mean (SMA). This resulted in lower sustained movements that now approach the lower bound of ascending channel.

The recent rise in metal prices has been a boon for SA platinum and SA gold miners. Real yields are still favorable, as South Africa remains well-positioned among emerging markets peers.

This latest pullback could be a springboard for USD/ZAR bears, as rising US inflation and tapering comments made by Jim Bullard, the St. Louis Fed President, this week could lead to increased expectations of an interest-rate hike.

The ascending channel is clearly visible if you zoom in on the hour chart. If the selling continues, there may be a move towards the channel's lower bound towards 14.28 - 14.32 support. This is before the 14.14 level becomes next in line of support.

The upside risks associated with USD/ZAR are however significant:

  • Civil unrest continues to cause damage to infrastructures and supply bottlenecks
  • Investor confidence has fallen
  • Tapering discussions and rising inflation in the US Fed dot plot showed that there were expectations for the beginning of the interest rate hike cycle.

USD/ZAR Bulls will watch for a break above the 200 SMA (a widely used indicator to gauge long-term trend direction and trend reversals). 14.50 is the immediate resistance level. After that, the recent high at 14.80 will be in play.

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