USD/ZAR forecast as South Africa’s business confidence slips

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Dec 8, 2021
  • The USD/ZAR pair has declined sharply in the past few days.
  • The decline happened eve after the weak South African data.
  • We explain why the South African rand strength will continue.

The USD/ZAR pair declined for the third straight day as the US dollar retreated across the board. The pair is trading at 15.80, which is about 3.50% below the highest level this month. It is still about 17% above the lowest level this year.

South Africa and Omicron variant

The South African economy is going through a challenging period because of the new Omicron variant. In the past few weeks, the number of daily cases has increased substantially. As such, there are worries that the country will see a weak economic recovery.

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Indeed, recent data shows that the South African economy is struggling. For example, data published on Tuesday showed that the country’s economy worsened in the third quarter of the year. It declined by 1.5% because of the riots that happened in that period.

Further data published on Wednesday showed that the country’s business confidence declined sharply in November. The confidence declined to 92.,8 in November from 94.9 in the previous month. This decline was mostly because of the country’s foreign trade account. Exports and imports declined in November. 

There is a likelihood that business and consumer confidence will decline in December because of the Omicron variant of the virus. The variant has seen countries like the United States and the United Kingdom ban travellers from the country.

The next key mover for the USD/ZAR pair will be the upcoming US inflation numbers scheduled for Friday. These numbers are expected to show that the country’s inflation remained at decades high in November. 

The inflation numbers will be followed by the upcoming Fed and South African Reserve Bank (SARB) decision scheduled for next week. While the Fed is expected to be hawkish, SARB will likely embrace caution.

USD/ZAR technical analysis

USD/ZAR

The daily chart shows that the USD/ZAR pair has been in a bearish trend in the past few days. The pair is approaching the 23.6% Fibonacci retracement level at 15.65. It remains slightly above the 25-day and 50-day moving averages. At the same time, the pair is slightly above the key resistance level at 1.1578, which was the highest level on March 8. 

Therefore, the South African rand will likely maintain its strength, with the next reference level being at 1.1578. This view will be invalidated if it manages to move below the key level at 16.00.

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