USD/ZAR: Here’s why the South African rand is falling

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on Apr 12, 2024
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  • The US dollar index jumped sharply this week after the strong US data.
  • It rallied after the US published strong inflation and jobs numbers.
  • The rebound had an impact on most currencies, including the South African rand.

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The USD/ZAR exchange rate rebounded this week as the US dollar index (DXY) bounced back and the countdown for the South African election continued. The pair initially slumped to a multi-week low of 18.40 and then spiked to 19.

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The US dollar index is soaring

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South Africa published encouraging economic numbers this week. On Monday, the central bank noted that its total foreign reserves jumped to $62.32 billion in March from the previous month’s $61 billion. 

Higher reserves are important because they help a government to respond to local currency devaluations. The net FX reserves jumped to $57.5 billion during the month.

The other important report came out on Thursday. According to the statistics agency, South Africa’s business confidence rebounded to 114.7 in February. Highly confident companies tend to hire and invest more.

Meanwhile, the country’s mining production increased by 9.9% in February, beating the median estimate of 3.5%. Gold production retreated by 3.6% during the month.

Another positive report showed that the country’s manufacturing production rose by 4.1% in February, a bigger increase from the previous month’s 2.9%.

Altogether, these numbers show that the South African economy is doing modestly well. However, inflation is a big issue now that it has jumped to its highest level in over four months.

The USD/ZAR pair rebounded because of the strong US dollar index, which jumped to $106 on Friday. This surge happened after the US published a series of strong economic numbers.

According to the BLS, the US created over 300k jobs in March, pushing the unemployment rate to 3.8%. In the same month, the country’s inflation jumped to 3.5% while the core CPI remained at 3.8%.

The implication of all this is that the Fed may not slash interest rates as most economists were expecting. Some analysts even believe that the bank will hike rates as its battle against inflation escalates.

USD/ZAR technical analysis

USD/ZAR

USD/ZAR chart by TradingView

The daily chart shows that the USD/ZAR exchange rate has been quite volatile in the past few months. It has remained inside the support and resistance levels at 18.40 and 19.40.

At the same time, the pair has formed a symmetrical triangle pattern, which I have indicated in black. This triangle has room to go since its two lines are still wide apart. 

The pair remains at the 50-day moving average and the strong pivot reverse of the Murrey Math Lines. The Money Flow Index (MFI) indicator has pointed upwards and crossed the neutral point of 50.

Therefore, the outlook for the USD to rand is mildly bullish, with the next point to watch being at 19.15.

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