USDZAR: Rand Drops Like a Rock After Government Ends Airline Support

Summary:
• The South African rand declined sharply after the government ended support for the national airline. Why the USDZAR will head higher going forward.

The USDZAR pair rose by more than 2.50% after the South African government ended its funding to the national airline. The decision is the last nail in the coffin for the country’s troubled carrier.

South African Airlines, the 86-year old carrier has been in trouble in the past few years. These troubles started when it started competing for traffic with other African airlines like the Ethiopian. Other international airlines like Etihad and Emirates have also taken market share in South Africa.

As a result, the airline has made losses worth more than $1.4 billion in the past six years. During this time, it has relied on a series of government bailouts. The current coronavirus pandemic has made things worse since the company is not carrying any passengers.

The government hopes to use the saved resources to fund a stimulus package since most of the country is now in lockdown.

The airline is not the only troubled government-owned company in South Africa. Eskom, the country’s power monopoly has been in financial problems for almost a decade. Just last year, the company reported a loss of more than R20 billion. This was the biggest loss ever recorded by a South African company.

Troubles for the South African economy continued last week when Moody’s downgraded the country’s five banks. The company downgraded Standard Bank of South Africa, Absa, First National Bank, FirstRand, and Investec.

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USDZAR Technical Analysis

The USD/ZAR pair rose to an intraday high of 18.7625, which is the highest it has been since Thursday last week. On the hourly chart, the price appears to be forming a cup and handle pattern, which means that the price could move to retest the YTD high of 19.3325. This scenario is confirmed by the fact that the pair has just moved above the 50% Fibonacci Retracement level.

This Fibonacci was drawn by lining the highest and lowest levels in the past week. Therefore, the next resistance level to watch will be the resistance level of 19.00, which is close to the 78.6% retracement level.

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