USD/ZAR: South African rand could rise by another 1.50% to 14.3
- The USD/ZAR price declined sharply after South Africa’s deal with Pfizer.
- The country will soon start receiving 20 million vaccine doses.
- South Africa’s PMI also rose in March, signaling that the economy is recovering fast.
The USD/ZAR price declined after the relatively good news from South Africa and as the US dollar declined. The pair dropped to 14.50, the lowest level since February 25.
South Africa rand rallies
The South African rand rallied on Wednesday after the government announced a major deal with Pfizer (NYSE: PFE) and BioNTech. The two companies agreed to supply more than 20 million doses of their popular vaccine. They will deliver these doses later this month.
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The government and two companies had previously disagreed on the distribution model. That’s because Pfizer had demanded key contractual conditions that were not compatible with the country’s procurement laws.
In the past few weeks, South Africa has focused its vaccination efforts to about 250,000 medical workers. In addition to the Pfizer shots, the government has reached an agreement with Johnson & Johnson for 30 million doses.
Therefore, the USD/ZAR declined because forex investors expect the country’s economy to recover faster. Furthermore, the number of daily infections has dropped to just 437, from the all-time high of 21,000 in January.
Meanwhile, the pair declined because of the strong business activity. In a report today, Standard Bank said that the PMI increased to 50.3 in March from 50.2 in February. The reading has remained above the expansion zone of 50 for the past six consecutive months. Therefore, the country’s economy will likely rebound faster than expected.
Further, there are signs that the South African Reserve Bank (SARB) will hike interest rates earlier than expected. In its recent decision, the bank left rates unchanged and pledged to offer more support. However, as inflation rises, there is a possibility that the bank will soon hike. Furthermore, other EM countries like Brazil have already hiked.
USD/ZAR technical forecast
In my last article on the USD/ZAR, I pointed to the bearish flag pattern that was forming and argued that the South African rand would soon rally. That happened and the price is approaching its year-to-date low. The downward trend is being supported by the short and longer-term moving averages.
The SuperTrend indicator is still bearish. Most importantly, the price is at the first support of the standard pivots. Therefore, in my view, the next key point to watch is the second support at 14.32, which is about 1.50% below the current level.