USD/ZAR: South African rand at strong support as the economy improves

USD/ZAR: South African rand at strong support as the economy improves
Written by:
Crispus Nyaga
November 3, 2020
  • The USD/ZAR pair is at a strong support level as traders react to the positive economic data from South Africa
  • Data by Absa Bank showed that manufacturing PMI rose to 60.9, the highest level on record.
  • The pair is also waiting for the outcome of the US general election.

The USD/ZAR is little changed today as traders focus on the American election and the mixed economic data from South Africa. It is trading at 16.2070, which is close to the double-bottom level of 16.10.

USD/ZAR at a strong support

South Africa manufacturing rebounds

Two separate reports by Markit and Absa Bank showed that the manufacturing sector in the country made some progress in October. That was because of rising domestic orders and as the government eased on movement restrictions. Indeed, the number of daily infections has fallen to less than 1,000 from a peak of 13,000 in July.

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The Markit manufacturing PMI rose to 49.4 in October from the previous month’s 45.3. This was the biggest level it has been in 11 months and is evidence that business activity has improved. The report cited rising output, new orders, employment, and stocks of purchases. Most companies also were relatively confident about the next few months. In a statement, David Owen, an economist at Markit said:

“Expansions in output and demand will be needed to help businesses revive job markets though, as employment continued to fall steeply. A rise in jobs will likely appear after an increase in economic activity, as firms will need time to recoup losses from the pandemic.”

Another data by Absa Bank showed that the manufacturing PMI rose to 60.9 in October. That was the highest level it has been since the bank started compiling the number in 2012. The report said:

“The further increase at the start of the fourth quarter is an encouraging sign the manufacturing sector continues to recover following a record contraction in April.”

However, data from South Africa showed that fewer people bought cars in October. In total, the number of vehicle sales dropped to 38.75k in October, a year-on-year drop of 25.70%

The USD/ZAR price is also focused on the upcoming general election in the United States followed by the Fed interest rate decision and the nonfarm payroll numbers.

USD/ZAR technical outlook

USD/ZAR technical chart

The USD/ZAR is trading at 16.2070. On the daily chart, this price is slightly below the 25-day and 15-day exponential moving averages. It is also near a strong support, where the price has struggled to move below since June. The price has also formed a descending triangle pattern that is shown in green.

This triangle, however, is not close to its confluence zone. This means that the pair will likely remain in the current range. However, a clean break below the support at 16.00 will be a vindication to bears and will possibly lead to more declines.