USD/ZAR: Here’s why South African rand has soared to an 11-month high

The USD/ZAR price tumbled today, pushing the South African rand to its highest level since February this year. The currency has risen by more than 22% since April, making it one of the best performers this year.

South African economy bounced back in Q3

The South African economy bounced back in the third quarter as the number of new Covid-19 cases declined pushing the government to ease lockdowns.

According to the country’s bureau of statistics, the economy rose by 13.2% in the third quarter, pushing to an annualised growth of 66.1%. That was a better performance than the 52.4% growth that analysts polled by Reuters were expecting and the previous quarter’s contraction of 51.7%.

All sectors of the economy expanded in Q3, coming from a low base in the second quarter. The biggest drivers for the economy were the manufacturing, trade, and mining that rose by 210%, 137%, and 280%, respectively. Other notable gainers were transportation and communication, electricity, gas and water, and personal services.

Like in other countries, household spending jumped, led by transport, alcoholic beverages, and tobacco. Exports also increased by 201.4% in the quarter mostly because of vehicles and transport equipment.

South Africa is not the only country that recorded an expansion in Q3. Earlier today, we reported that Japan’s economy rose by 22.9% in the quarter. A similar report by Eurostat showed that the European economy expanded by 12.5% in Q3.

In recent months, the USD/ZAR has been on a sharp downward trend mostly because of the weaker US dollar and the overall embrace to risk. Indeed, other emerging market currencies like the Singapore dollar and the Mexican peso have also been rising.

USD/ZAR technical outlook

On the daily chart, we see that the USD/ZAR has been on a sharp downward trend after it reached a year-to-date high of 19.32 in April. The pair has managed to move below all Fibonacci retracement levels and is now at the 78.6% level.

It is also below the 50-day and 25-day exponential moving averages. As you can try with your free forex demo account, this is usually a sign that bears are in control.

The stochastic oscillator has also moved to the oversold level. Therefore, in the near term, the path of least resistance for the USD/ZAR is lower, with the next support being below 15.00.