USD/ZAR: rand gains momentum as dollar sell-off accelerates

The USD/ZAR pair declined sharply as the US dollar retreated and after the latest strong South African PMI data. The pair declined to 14.2287, which was 2% below the highest level last week. 

South Africa PMI

The South Africa business struggled in June as the country faced the third wave of the pandemic. The country’s PMI declined for the second straight month to 51.0 from the previous 53.2. This sent signals that the country’s rebound is facing some strains. 

South Africa’s output declined for the first time in six months as companies complained of higher costs. They also talked about supply issues. Similarly, new business growth stalled while business confidence declined for the second straight month. In a note, David Owen of Markit said:

“Supply shortages remained a key concern, with delivery times, backlogs, purchasing and prices all impacted in June. On the positive side, lead times lengthened to least extent since January 2020, while input price inflation eased.”

The USD/ZAR is also falling because of the overall dollar weakness. The US dollar index has declined by more than 0.30% as investors react to the latest non-farm payrolls data. It has fallen by more than 0.15%, 0.25%, and 0.20% against the euro, sterling, and Japanese yen, respectively. 

Last Friday, data from the US showed that the economy added more than 185,000 jobs in June, as the economy continued rebounding. The unemployment rate increased to 5.9% while wages increased as more companies continued competing for workers. 

Later this week, the USD/ZAR will react to the latest FOMC minutes that will come out on Wednesday. These minutes will provide more details on the recent Fed interest rate decision. In it, they decided to leave interest rates and quantitative easing unchanged.

USD/ZAR technical analysis

The four-hour chart shows that the South African rand has strengthened sharply against the US dollar recently. The pair managed to cross the important support at 14.4022, which was the highest level on June 21. It has also dropped below the 25-day and 50-day exponential moving averages (EMA). 

The pair is also approaching the Ichimoku cloud. Additionally, it seems to be forming a double-top pattern whose neckline is at 14.0153. Therefore, the pair will likely keep falling as bears target this neckline. This prediction will be invalidated if it moves above the resistance at 14.40.