The USDZAR is down by 0.70%, accelerating the South African rand’s gains to the new month. Yesterday, the pair completed the seventh straight month in the red, the first time it has done that since 2002.
The South African has been on a strong rally in recent months because of the risk-on sentiment in the market. Ideally, the recent discovery of a Covid-19 vaccine coupled with the peaceful American election has pushed more people away from the dollar.
The relatively strong economic data from South Africa have also pushed more traders to the rand. The mining sector is making a comeback while retail sales are rising. Similarly, the manufacturing and services sectors have continued to do well too.
However, the biggest risk for the rand is that the country’s debt has continued to soar. Just a few days ago, Fitch and Moody’s, two of the leading rating agencies pushed the country deep into the junk section. While S&P Global did not cut further, it left the country to junk. As the world moves past Covid, there is a probability that investors will start to question the country’s fiscal situation.
Turning to the monthly chart, we see that the last time the USDZAR dropped for 7 consecutive months was between September 2002 and April 2003. The pair remains above the 50-month and 100-month exponential moving averages, which is an indication that bears have more room to run.
Therefore, for December, I predict that the downward trend will continue, with the next target being at 14.7800. However, a move above the January 2016 high of 17.28 will mean that there are still buyers, who will be keen to push it higher.
