The US dollar initially fell on Tuesday but turned back around to cross the 16 rand level. The 16 rand level has been important multiple times in the past, although recently we have been slicing back and forth through it like it is no big deal. Regardless, the most important thing to pay attention to on this chart is the fact that we have been in a bullish trend, and this does make sense considering that although omicron has not been as deadly as once feared, the reality is that the coronavirus numbers in South Africa continue to be a major issue.
Beyond that, there has been more of a “risk off attitude” around the world over the last several sessions, so it does make quite a bit of sense that the US dollar will continue to pick up strength against the South African rand as it is an emerging market currency, meaning that it is highly sensitive to things like inflation. As long as there are concerns about growth on a global scale out there, then economies like South Africa will continue to suffer.
Looking at the structure of this market, the 15.50 rand level features the 50 day EMA, and sees it rising at that point. Because of this, I think it is probably only a matter of time before we see buyers come back into this market if we were to pull back towards that region. You can also make an argument for a little bit of a bullish flag being formed, and perhaps even being broken out of. With that, it suggests that the market could go as high as 17.25 rand, which would not be a huge move considering the way we have been grinding away to the upside in a rather resilient manner.
Pay close attention to risk appetite around the world, because if it starts to falter, that will add more fuel to the fire here. Beyond that, the Federal Reserve is in a two-day meeting that will determine whether or not they are going to increase the pace of tapering, which would be very bullish for the US dollar if they did. Against smaller currencies like the South African rand, the move higher in the value of the greenback will be much more pronounced than some of its G-10 peers.
