The South African rand, often seen as a bellwether for the emerging market currencies, has soared to the highest point since September last year. The USD/ZAR exchange rate has soared to a low of 17.14, down by over 14% from its highest point this year.
Why the South African rand has soared.
The South African rand has been in a strong rally this year, becoming one of the best-performing currencies in the emerging and developed markets.
It has soared even after the ongoing skirmish between the United States and South Africa. Trump has implemented a 30% blanket tariff on goods from South Africa.
The deal affected goods worth over $26 billion. South Africa exported goods worth over $10 billion, most of them which are gold, platinum, and vehicles.
The South African rand has jumped because of the ongoing performance of the commodities market. Gold price has jumped to over $4,000, while other commodities like silver, platinum, and palladium have all jumped by double digits this year.
Gold price has jumped to $4,000, while platinum rose to $1,672. Palladium, another top South African export, has jumped to almost $1,500. The ongoing commodity market rally has helped to boost South African exports.
The USD/ZAR exchange rate has also plunged because of the recent US dollar index crash. It dropped to below $100 from the year-to-date high of $110.
The pair has also moved downward because of the ongoing carry trade between the US and South Africa. The Federal Reserve has slashed interest rates to between 4% and 4.25%. On the other hand, the South African Reserve Bank (SARB) has moved rates to about 7%. Therefore, investors are borrowing the US dollar and investing in South African assets.
Meanwhile, the South African rand has jumped because of the ongoing political stability in the country.
The deal between the Africa National Congress (ANC) and the Democratic Alliance (DA) has held steady. This stability has helped to stabilize the economy and reduce inflation. The head of the SARB said:
“Sustained low inflation brings about lower and stable interest rates, which is good for investment, employment and growth.”
USD/ZAR technical analysis
USDZAR chart | Source: TradingView
The daily timeframe chart shows that the USD/ZAR exchange rate has been in a strong bearish trend. It has moved from a high of 19.92earlier this year and is now at 17.10.
The pair has moved below the important support level at 17.43, its lowest level in July and August. Also, the Relative Strength Index (RSI) and the MACD have continued falling.
Therefore, the pair will likely continue falling as sellers target the next key support level at 17, followed by the psychological level at 16. A move above the resistance at 17.43 will invalidate the bearish outlook and point to more in the near term.
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