USD/ZAR weekly timeframe updateI had to invalid my previous long-term USDZAR idea for the 3Q2023 after the rand’s strong rally within the current A-B-C corrective pattern in June and July. The pair is now testing a critical support range between 17.92, the 61.8% Fibo retracement level which coincides satisfyingly with the 50-week MA rate, and 18.03, the pair’s 200-day MA. (17.92 – 18.03)
A break below this support range will allow the rand to pull the pair into the major blue support range between 16.70, 2023 low, and the green 61.8% Fibo rate of 17.05. The long-term 200-week MA support at 16.12, which is lining up with the long-term black trendline currently seems a bit far but if the winds blow into the rand’s sails, we may very well see the rand test this support later this year.
Now the question is what factors could create a favourable climate for those rand breezes. Well for starters, the rand’s carry trade advantage. The difference between long-term SA bonds and US securities is currently very favourable for the rand with SA 10-year bonds yielding north of 11%. Another positive factor is the SA trade balance which is currently sitting at a surplus of R10 billion. Additionally, the interest rate hiking cycle seems to be taking a breather as well as global CPI and PPI figures which is adding fuel to risk-n investor sentiment which is rand positive.
There are however some tides which could limit the rand’s recovery. The main one is the expected “mild recession.” A mild recession, the Federal reserve's words not mine, would put commodity prices under pressure as well as dampen investor sentiment (the rand behaves like a commodity currency). Additionally, the most recent GDP figures from China also does not bode well for commodity prices and SA exports. China 2Q2023 GDP figures came in lower than expected at 6.3%, yoy, up from 4.5% in 1Q2023. Bear in mind this is the year-on-year growth following the reopening of the Chinese economy after the lockdowns in 2022…
So, on the flip side, dampened investor sentiment and weak commodity price growth will strengthen our support range between 17.92 and 18.03. A failed break below this range will see the pair inch back higher towards the blue 50% - and 38.2% Fibo retracement rates at 18.31 and 18.69 respectively.
I’m relatively neutral at the current price range but if I had to stick my neck out, I’m leaning towards a break below my critical support rate (17.92 – 18.03) over a push higher back above 18.50.
The weekly technical indicators are also rand positive with the MACD holding a strong sell signal while the RSI has plenty of room to move lower before hitting the oversold range. On the daily indicators, the pair is oversold, rand overbought, which could allow the pair to test the top end of the current downward channel.
