USDZAR
The USDZAR is down for the third consecutive day as traders react to the latest South Africa credit rate downgrades. The risk-on sentiment in the market has also helped boost the South African rand against the US dollar.
On Friday, Fitch Ratings and Moody’s delivered another credit rate cut for South Africa, pushing it deeper into junk territory. The two agencies cited the country’s high debt levels and the impact of the Covid pandemic.
In its statement, Fitch said that it expects that the economy will contract by 7% this year and rebound by 4.8% in 2021 and slow to 2.5% in 2022. Notably, the agency said that that the government could fail in its implementation of the Economic Reconstruction and Recovery Plan (ERRP).
Unlike what I had predicted on Friday, S&P Global did not cut the country’s debt rating. Instead, they reaffirmed its junk status of the country’s economy.
Meanwhile, the latest developments of the Covid has been a positive thing for the South African rand. That is because it has led to more demand for emerging market currencies at the expense of the dollar.
On the daily chart, we see that the USDZAR price has been on a deep dive recently. At the current level of 15.3595, the price is below the 61.8% Fibonacci retracement level. It is also below the 25-day and 15-day weighted moving averages.
Therefore, the path of least resistance is lower, which could see the price drop to the support at 15.2075. On the flip side, a move above 16.00 will invalidate this trend.
