USDZAR: What Next for the Vulnerable South African Rand?

Summary:

The USDZAR is little changed today as the South African rand grows increasingly under pressure. What's next for the vulnerable currency?

The USDZAR pair is little changed today as investors react to the FOMC minutes and the rising number of coronavirus cases in the country has continued to rise. The pair is trading at 17.2818, which is below this month’s high of 17.7957.

The South African rand has recently been under intense pressure as the number of coronavirus cases in the country continue to rise. In total, the total number of coronavirus infections in the country has risen to almost 600K while more than 12,000 deaths have been confirmed.

The country is particularly in trouble because it was in a recession even before the current pandemic. For example, the economy contracted by 1.4% in the fourth quarter of 2019 after falling by 0.3% in the third quarter of 2019. Subsequently, the economy contracted by more than 2% in the first quarter.

It is expected to have a deeper contraction in the second quarter. The central bank expects it to contract by 7.2% this year while the debt to GDP will climb to 140%. Also, more than 7 million people in South Africa risk losing their jobs.

Meanwhile, the country’s first attempt to reopen the economy faced challenges as the number of infections continued to rise leading to a slight rollback. Also, the country has taken a loan from the IMF for the first time in history.

At the same time, the USDZAR has been struggling for direction. After peaking at 19.3300 in March, the pair dropped to a low of 16.3522 on June. It then rose and found strong resistance at 17.5190, and then dropped to 16.3420. Next, it rose to 17.7552, and is now dropping.

USDZAR technical outlook

The weekly chart below shows that the USDZAR is trading at 17.2818. This is an important price considering that it was the highest level in January 2016. Also, the price is above the 50-day and 100-day exponential moving averages and above the ascending black trend line.

Therefore, the outlook for the USDZAR at this point is neutral. A move below 16.34 will mean that bears have prevailed, which will see the price continue falling. This is the lowest price in June as well as the 50-day EMA. On the other hand, a move above 18.00 will see the pair continue rising.