- The USD/ZAR has initially tried to rally against the South African Rand during the trading session on Monday but has given back about half of the gain as I write this article.
- The 50-Day EMA is offering a bit of resistance, right along with the 200-Day EMA, presently sitting just above the 18.60 Rand level.
It’s probably worth noting that last week it fell apart, as traders are now starting to bet on the idea of the Federal Reserve loosening its monetary policy, or at the very least slowing it down. The South African Rand of course is extraordinarily tight with its monetary policy with its 8.25% rate, while the Federal Reserve has a 5.5% rate. In other words, you get paid to short this market and hang onto it. I think that continues to work against the dollar at this point, as traders search for some type of yield.
The US Dollar is Struggling
That being said, there are also a lot of concerns globally so that could work against the South African Rand as it is an emerging market currency. Regardless, I do think this is a scenario where it’s probably only a matter of time before we have to make a bigger move. It’s probably worth noting that the 18 Rand level sits just below current trading, and of course there is a certain amount of psychology attached to that number, as well as market memory when it comes to the previous resistance. It does look like the US dollar is on its back foot at the moment, and therefore I think higher-yielding currencies such as the South African Rand will come back into boat, at least for the short term.
If the market were to turn around a break above the 19 Rand level, that would be a huge turnaround, because it would wipe out that massive red candlestick from last week. I don’t expect to see that happen, but if it were to happen it would be a situation that you would have to pay close attention to, because quite frankly it would be a huge move against the massive selloff that we had seen during the previous week. Or likely than not, we will eventually try to break down below the 18 Rand level, and maybe go looking to the 17.50 level.
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