The South African rand remained fairly stable despite the US election led volatility just yesterday. USDZAR hit a 52-week low falling to 13.171 before managing to bounce back up and is seen currently trading at 13.448.
The price level around 13.475 region has been a strong support level as noted a few weeks ago and the USDZAR has, in fact, remained caught within the trading range of 14.375 and 13.475 within the falling price channel. This, however, could signal a near-term shift in this downtrend which has been in play since early January this year.
The question now is whether the dollar will continue to remain weak and trigger a breakdown below the key support at 13.475 or if the dollar will post a rebound off this support to pare the current declines. On a year to date basis, the South African rand is up by around 13% against the greenback.
ZAR stronger on regional political developments
Over the past few weeks, the political landscape in South Africa saw a more favorable outcome which has, in turn, supported the gains in the rand.
Late October, the controversy involving the finance minister, Pravin Gordhan saw the SA prosecutor dropping all charges which led to a 2% rally in the ZAR. Earlier, the decision to prosecute Gordhan led to an outcry as the move was slammed by opposition leaders and even some members of the ruling political party. Gordhan had back then denied any wrongdoing and called the events “politically motivated.”
A few days later, the rand once again found support after President; Jacob Zuma announced that he withdrew a court bid to block the state capture report. Following his announcement, the rand, which was already rallying on the Gordhan issue, advanced to a five-week high.
Speculators expect to see Zuma being closer to leaving office.
Piotr Matys, an EM currency strategist at Rabobank, called the news positive for Gordhan, saying, “A very positive market reaction to President Zuma’s decision reflects how important Finance Minister Gordhan is for investors,”
On the international landscape, South Africa has the same questions as many other nations do, which is “what does a Trump victory mean for US-SA relations.”
Razia Khan, chief economist at Standard Chartered Bank, reflects this view, “The question now is what will a Trump victory mean for the performance of SSA (sub-Saharan Africa) markets.” While Daniel Silke, a political-economic analyst said that with the Trump victory and Brexit vote earlier signals uncharted territory for the African markets and developing markets.
South Africa’s trade with the US gained attention after last year; President Obama cautioned that the country’s benefits under the African Growth and Opportunity Act (Agoa) could be in jeopardy unless South Africa lifted trade barriers to US trade and imports. With Trump taking a tough stand on international trade, it is understandable that the South African leadership is cautious, just like the rest of the world.
USDZAR: A bottom in the making?
For the currency speculators, the USDZAR currency pair sits at a crucial level which could determine further weakness or strength in the South African rand. While on the monetary side, the Fed rate hike prospects for December is still in play, there is a lot of uncertainty on the broader aspect of things, especially the new US leadership.
From a technical outlook, USDZAR is quite likely in the process of carving out a strong double bottom pattern with price retesting the 13.271 – 13.15 support level. But further declines can only be expected on a strong break below 13.15, in which case, the dollar could be seen testing 13.00 and possibly extending the declines to as much as 12.50.
To the upside, 14.375 remains the key resistance level, and any gains can be expected only a breakout above this resistance. However, the upside will no doubt come under pressure with the next main resistance at 15.50 – 15.70 likely to offer strong resistance.
