South African Rand Dollar Forecast:
- USD/ZAR pauses at historical resistance – systemic risks remain high with FOMC on tap.
- US Dollar recovers against the Rand despite a potential banking crisis.
- South African Rand faces additional pressure as concerns over Monday’s national shutdown mount.
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USD/ZAR recover as rate expectations and fears of a banking crisis drive sentiment
It’s been a challenging week for global markets and for USD/ZAR which is currently trading around a key level of resistance at 18.385.
As doubts over the stability of the financial system drove rate expectations lower, USD/ZAR slumped before regaining confidence. For the US Dollar, the Federal Reserve has continued to hike interest rates at an aggressive pace, in an effort to tame inflation. This has made the greenback attractive to investors, weighing heavily on EM (emerging market currencies).
Visit DailyFX Education to learn about the relationship between interest rates and FX
With the failure of SVB (Silicon Valley Bank) raising concerns over further contagion, US authorities stepped in by guaranteeing deposits. Although the injection of liquidity helped ease fears, it has also eliminated the probability (likelihood) of a 50-basis point rate hike.
According to the FedWatch tool, analysts are now pricing in a 0.25% increase with some predicting that rates will remain unchanged.
Source: CME FedWatch Tool
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As market participants expect Fed Chair Jerome Powell to take a more dovish tone at the upcoming FOMC, South Africa continues to struggle with their own political and economic constraints.
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South African citizens warned about protests – will this be a repeat of the July 2021 unrest?
Since 2008, South Africa has been dealing with loadshedding (rolling blackouts). With corruption and poor maintenance responsible for the power crisis, the nation’s electricity crisis has worsened, causing businesses and households to find additional sources of energy. As power utility, Eskom, receives enormous amounts in the form of government bailouts, the current situation has placed an additional burden on the lower and middle class.
With no government support, labor unions and workers are protesting, demanding higher wages. Meanwhile, with a national shutdown anticipated to occur on Monday, there is a possibility that unrest could result in looting and violence. In July 2021, similar unrests added to the country’s vulnerable economy, causing Billions of Rands in damage to private and public property.
USD/ZAR Technical Analysis
From a technical standpoint, USD/ZAR is currently testing a historical level of resistance around 18.385. If the Dollar weakens, a move lower brings the 20-day MA back into play, opening the door for a move toward the weekly low (18.044).
USD/ZAR (Dollar Rand) Daily Chart
Chart prepared by Tammy Da Costa using TradingView
However, if tensions in SA rise and there are clear signs of social unrest or a hawkish Fed, a break of resistance could drive price action to the next psychological level of 18.500 and toward the monthly high of 18.716.
— Written by Tammy Da Costa, Analyst for DailyFX.com
Contact and follow Tammy on Twitter: @Tams707