South African Rand Outlook: Rally Cools as USD/ZAR Tests 18 but Sellers Return
The South African rand’s two-month rally paused last week as safe-haven demand briefly lifted the USD, but the underlying trend may soon...
Quick overview
- The South African rand's two-month rally paused last week due to safe-haven demand for the USD amid geopolitical tensions.
- Despite a brief rebound in the USD/ZAR exchange rate, technical indicators suggest this may be a temporary move.
- Local developments, including rising forex reserves and political stability, continue to support the rand's strength.
- If geopolitical risks ease, the rand could regain ground, with potential downward momentum for USD/ZAR toward 17.50.
The South African rand’s two-month rally paused last week as safe-haven demand briefly lifted the USD, but the underlying trend may soon resume if geopolitical risks ease.
Rally Interrupted: USD/ZAR Rebounds, But Momentum Fades
The South African rand, one of the top-performing emerging market currencies this quarter, finally took a breather last week after an impressive 12% climb since early April. The USD/ZAR exchange rate had steadily declined from around R20 to a low of R17.65, driven by strong global risk appetite, softening U.S. inflation expectations, and improved domestic fundamentals in South Africa.
USD/ZAR Chart Daily – The 50 SMA Rejecting Buyers
However, renewed geopolitical concerns in the Middle East—particularly escalating conflict between Israel and Iran—sparked a fresh bout of risk aversion. That prompted safe-haven flows into the U.S. dollar, pushing USD/ZAR back above the psychological 18.00 level. Despite this brief rebound, the technical backdrop suggests this move may be temporary.
USD/ZAR Chart Weekly – The 200 SMA Held Again
Technical Outlook: Resistance Looms, Trend Still Favors Rand
The daily chart shows USD/ZAR encountering strong resistance from the 50-day simple moving average, which has capped recent gains. While the weekly chart highlights support at the 200 SMA—previously a strong launch point in 2023—the rebound lacks strong conviction, hinting at possible renewed selling if tensions ease.
If geopolitical risks subside in the coming days, particularly in the Middle East, the rand could regain ground. The pair’s inability to hold above 18.00 would signal a continuation of the broader bearish trend in USD/ZAR.
Local Tailwinds Supporting the Rand
In addition to external macro drivers, the rand continues to enjoy support from local developments. South Africa’s net forex reserves rose from $64.318 billion to $64.804 billion in May, strengthening the country’s financial position. A resolution to recent political uncertainties, including a coalition budget standoff, has also calmed investor nerves.
Markets also cheered the possibility of a revised inflation targeting framework, which could tighten monetary policy and support the currency longer-term. These internal and external tailwinds combined helped the rand resist deeper losses, even as gold prices—a key export—dropped by nearly 3% last week.
Conclusion: While USD/ZAR saw a temporary bounce last week due to geopolitical shocks, the long-term trend still favors a stronger rand if the situation stabilizes. With technical resistance in place and underlying fundamentals intact, sellers may soon re-emerge, continuing the pair’s downward momentum toward 17.50 and beyond.
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