The US dollar has been rallying against emerging market currencies overall, at least over the last couple of months. As we look at the month of August, the dollar has tried to reach towards the 15.50 ZAR level but has pulled back. The question now will be whether or not the Federal Reserve will taper going into the end of the year. After all, the Federal Reserve will have a massive influence on what happens with emerging market currencies, as so many of the big players in the emerging markets sphere have to pay their debts in the very same greenbacks.
The South African rand is one of the bigger EM currencies, so it is one that I want quite a bit. At this point, if the USD/ZAR pair can break above the 15.50 level, it opens up a much bigger move to the upside for the greenback against the rand. This would almost certainly be a “risk off” type of situation because the US dollar gets a bid in those situations. That being said, there have been some special situations in South Africa recently, with the talk of redistribution of land and the rioting that has been so much of the headlines recently.
One factor that is completely apart from South Africa is coronavirus. If the infection rate starts to pick up and we see the global economy slowed down, money will start running towards safe havens such as US Treasuries, which will be toxic for this market. That could be one of the reasons we go higher, as there is so much uncertainty going forward. However, if the coronavirus gets “looked through”, then it is likely that this pair will go looking towards the 13.50 rand level during the next month or two.
From a technical analysis standpoint, it looks like this pair is very comfortable bouncing around between 13.50 ZAR on the bottom, and 15.50 ZAR on the top. The MACD is seeing a signal line cross above the zero level, typically suggesting that we could be seeing a bit of a pickup in momentum. In other words, we are at the top of a range and have just now pulled back to show signs of resistance. However, if the MACD is to be trusted, that suggests that we will probably continue to see buyers on short-term dips. No serious move will happen until we break out of the consolidation.
