USD/ZAR: Here’s why the South African rand just reversed
- The USD/ZAR pair has jumped by more than 1% today.
- This performance is due to the rising number of coronavirus cases in South Africa.
- The surge is being driven by a new coronavirus variant.
The USD/ZAR is up by more than 1.28% as forex investors react to the rising number of coronavirus cases in South Africa. It is trading at 14.90, which is substantially higher than last year’s low of 14.51.
South Africa coronavirus crisis
The South African rand had a relatively strong 2020 due to the overall risk-on sentiment in the market. It rose by more than 25% from its lowest level in March. This made it one of the best-performing currencies in the world.
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Today, the USD/ZAR has erased some of these gains as the country continues to deal with the rising number of coronavirus cases. Yesterday, it confirmed more than 12,000 new cases, bringing the total to more than 1.1 million. The number of deaths increased by 434 to more than 30,000.
Health officials have attributed this spread to the new variant of the virus that is spreading faster than the original one. The new mutation, known as E484k, is relatively different from the one spreading in the United Kingdom. Scientists are studying whether the existing vaccines will be effective to the new variant.
At the same time, the South African government is struggling to raise funds to secure the vaccines. In a statement, Pfizer and BioNTech said that they would provide their vaccines to South Africa at a discounted rate of $10 per dose. The government said that the amount was still high.
Further, the USD/ZAR is rising partly to worries of the country’s fiscal state. In response to the pandemic, the government borrowed billions of dollars, which could present new risks to the economy this year. Already, the major credit rating agencies like Fitch, S&P Global, and Moody’s have cut the country into junk status.
Meanwhile, investors are still watching out for the upcoming election in Georgia. A win by the Democrats will provide Joe Biden with the votes that he needs to actualise his agenda. This includes more stimulus and higher taxes.
USD/ZAR technical outlook
The USD/ZAR is trading at 14.90. On the daily chart, the pair seems to have formed a double bottom pattern at the 14.51 level. It also remains slightly below the 50-day and 25-day exponential moving averages and rejected the previous bearish flag pattern.
Therefore, while the overall trend is bearish, the pair will likely continue to rise, as bulls attempt to move to the next resistance at 15.30. You can learn more about technical analysis in our free forex course.