USD/ZAR forecast: Bullish pattern forms as JSE All Share Index slumps

The South African rand has pulled back in the past two months as the ongoing US-Iran war disrupted the country’s economic growth. The USD/ZAR pair soared to 17.06, as the JSE All Share Index and gold prices slumped.

The USD/ZAR exchange rate has rebounded because of the ongoing Iran war, which pushed energy prices substantially higher in the past month.

Brent, the global benchmark, and the West Texas Intermediate (WTI) have all jumped above $100 this month, and this trend may continue as the war gains steam.

The disruptions in the Strait of Hormuz has had some impact on South Africa’s economy, where fuel prices have continued rising, a move that will impact the country's inflation.

At the same time, the USD/ZAR surge has coincided with the ongoing gold price retreat. Data shows that gold has dropped by over 14% in the last 30 days to $4,560. It is nearing a bear market after falling by over 18% from its highest point this year.

Gold is a top export commodity in South Africa, and the economy tends to do well when it is in a strong uptrend. Other top South African commodities like platinum and palladium have also pulled back in the past few weeks.

The ongoing gold price crash has contributed to the weak performance of the local stock market, with the JSE All Share Index having the worst performance since 2008.

It has dropped by 14% in March, with the previous metals and mining sectors erasing the gains made earlier this year. The sector accounts for about 27% of the index. Other top laggards were sectors like construction, materials, banks, and retailers.

Falling South African stock market often has a negative impact on the rand because of the substantial outflows, especially from foreign investors.

Meanwhile, the USD/ZAR exchange rate has rebounded in the past few weeks, helped by the ongoing US Dollar Index (DXY) rebound as investors move to its safety. The dollar index has jumped to $100, up sharply from last year's low of $96.

Analysts predict that the Federal Reserve will likely maintain higher interest rates for longer than expected this year. Polymarket data shows that the Federal Reserve will not cut rates this year, which explains why US bond yields have jumped in the past few months.

USD/ZAR technical analysis

USD to ZAR chart | Source: TradingView

The daily timeframe chart shows that the USD/ZAR exchange rate has rebounded in the past few months, moving from a low of 15.62 in January to a high of 17.25.

The pair has jumped above the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bulls are in control.

However, the pair has formed a rising wedge pattern, which is made up of two ascending and converging trendlines, which are now nearing the confluence zone.

The Relative Strength Index (RSI) and the Percentage Price Oscillator (PPO) are losing the bullish momentum. Therefore, the most likely scenario is where the pair retreats in the coming weeks. If this happens, the next key target to watch will be at 16.50.