USD/ZAR: South African rand rallies as risk-on sentiment sets-in

USD/ZAR: South African rand rallies as risk-on sentiment sets-in
Written by:
Crispus Nyaga
November 17, 2020
  • The USD/ZAR declined as traders reacted to the new report by Moderna about its vaccine.
  • The news reinvigorated the risk-on sentiment among forex traders.
  • Focus now shifts to the South African central bank that will release its rate decision this week.

The South African rand (USD/ZAR) firmed against the US dollar in overnight trading as forex tradersreacted to the latest developments on the Covid vaccine. The currency is also looking ahead to the upcoming interest rate decision by the South Africa Reserve Bank (SARB).

South African rand
South African rand rallies against USD

Risk-on sentiment

Risk-on sentiment has been a key theme in the forex market since last week. With the US election now behind us and with the latest developments on vaccine, forex participants have been moving away from safe havens. Notably, the US dollar has been on a downward trend, with the dollar index falling by more than 2% since November 4.

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Emerging market currencies have been key winners. For example, this month, the Mexican peso, Argentina peso, Brazilian real, and the South African rand have all gained against the US dollar, euro, and sterling.

Yesterday, the decline of the USD/ZAR price happened after Moderna published preliminary results of its Covid vaccine. The report showed that the vaccine had a 94% efficiency rate, which makes it higher than Russia’s Sputnik and the one developed by Pfizer and BioNTech.

Therefore, analysts and people trading forexnow believe that vaccine shots will be administered faster than earlier expected. A few months ago, they believed that a vaccine would take more than 16 months to develop.

In addition to this, the South African rand is strengthening ahead of this week’s SARB interest rate decision. The bank’s monetary policy committee will start its meeting and conclude it on Thursday. The meeting comes at a time when high-frequency data shows that the country’s economy grew faster than the expected 45.2% in the third quarter.

According to Bloomberg, most analysts polled expect the bank to leave interest rate at 3.5%. Similarly, forward-rate agreements signal that the bank will not cut this time.

SARB interest rate
SARB analysts estimates

USD/ZAR technical outlook

USD/ZAR technical outlook

The South African rand has been on a strong downward trend, as shown in the four-hour chart below. The USD/ZAR is trading at 15.3185, which is substantially lower than last week’s double-top at 15.7260. It is also below the blue descending trendline that connects the highest points in August, October, and November.

Also, the downward trend is being guided by the 15-day and 25-day moving averages. As you will find in our free forex courses, this is usually a signal that bears are in control. Therefore, I expect that the pair will continue falling, with the next support level to watch being last week’s low of 15.200.