The USD/ZAR has fallen a bit during the trading session on Monday, as we have seen the US dollar fall against almost everything. We are still very elevated, and I think despite the fact that we have lost over 1%, the reality is that the US dollar will be preferred over the South African Rand in this type of environment, as emerging market currencies are not very sought after in a major “risk off environment.”
If we break down below the 17.84 level, we could get a little bit of follow-through to the downside, perhaps even as low as the 50-Day EMA which is currently at the 17.22 level. Nonetheless, I think it’s very unlikely to see that happen without some type of follow-through in other currencies. The 50-Day EMA has been relatively stable as far as support is concerned, so a certain amount of market memory probably comes into play at that dynamic spot.
US Dollar Likely to Keep Gaining Ground
- On the other hand, we could turn around and take out the 18 Rand level, which obviously has a certain amount of psychology and recent structure behind it, so we were to break above that level, then it’s possible that the market could start to work its way toward 20 Rand.
- I think this eventually happens, because the US dollar has been like a wrecking ball for most currencies, and it’s hard to imagine that the South African Rand is going to be any different.
- This remains very much a play of “safety versus risk”, and even though we will have the occasional risk on rally, they will be short.
Emerging markets are having a lot of problems with US dollar denominated debt, and I think that is going to be the theme for the next 6 months or so. If the US dollar remained so highly bid, it’s difficult for these other currencies to catch a break. Furthermore, the South African Rand is highly sensitive to the commodity markets, which are during pricing in a global recession. A little bit of patience will go a long way, as the longer-term trend is so clear. In fact, it does not take a lot of imagination to envision an up-trending channel at this point.
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