South African Rand Supported by Gold, Weak Dollar – Will USD/ZAR Break Below R17.50?
The South African rand staged a notable recovery in early August, reversing part of July’s slide as gold prices surged and the dollar lost..
Quick overview
- The South African rand recovered in early August, reversing some of its July losses due to rising gold prices and a weakening dollar.
- The rand's volatility was initially triggered by a 25 basis point interest rate cut by the South African Reserve Bank, which led to a spike in USD/ZAR above R18.
- Despite challenges from new U.S. tariffs on South African exports, the government is focusing on boosting intra-African trade and diversifying markets.
- South Africa's private sector showed mild improvement in July, with the S&P Global PMI rising slightly, driven by stronger new orders and employment growth.
The South African rand staged a notable recovery in early August, reversing part of July’s slide as gold prices surged and the dollar lost ground.
Rand Regains Momentum After Turbulent Weeks
Following two weeks of volatility driven by the SARB’s interest rate reduction, fresh U.S. tariffs, rising gold prices, and shifting market sentiment, the South African rand clawed back losses against the dollar. In late July, USD/ZAR spiked above R18, marking its first sustained level above that mark since May.
Initial Pressure from SARB Rate Cut
The turbulence began when the South African Reserve Bank cut its benchmark repo rate by 25 basis points to 7% during its July MPC meeting, prompting commercial banks to lower their prime lending rate to 10.50%. The move triggered a swift market reaction, with the rand sliding and USD/ZAR climbing to R18.36. The pressure intensified as broad U.S. tariffs were implemented on August 1, lending support to the greenback.
USD/ZAR Chart Weekly – Sellers testing the 200 SMA Again
For South Africa, heavily reliant on commodity exports, the 30% levy on its U.S. exports posed a challenge. However, the government signaled a strategy to offset the impact by boosting intra-African trade and diversifying export markets. President Cyril Ramaphosa’s office also announced that he had spoken with U.S. President Donald Trump, with trade teams from both countries set for further negotiations.
Gold Prices and Weak Dollar Offer Support
A turnaround began when a weaker dollar and rising gold prices attracted investors to the precious metal, providing support to South Africa’s commodity-linked currency. The dollar’s decline was accelerated by disappointing U.S. labor data, which raised concerns about the resilience of the U.S. job market.
As one of the world’s top gold producers, South Africa benefited from a third consecutive session of gains in gold prices, pushing USD/ZAR back below R17.70. This reversal highlighted persistent selling interest at higher levels, limiting the dollar’s advance.
Technical Outlook Shows Cautious Balance
From a technical perspective, the 50-month SMA continues to act as a crucial support area. While the multi-month USD/ZAR downtrend from above R20 to under R17.50 appears to be slowing, a recent retest of the 100-week SMA hints at a potential bullish reversal if resistance levels are breached.
For now, sentiment remains slightly in favor of the rand, but candlestick formations on the weekly chart suggest upward momentum could resume if key ceilings are broken.
South Africa PMI Shows Mild July Improvement
South Africa’s private sector saw a modest boost in July, with the S&P Global PMI edging up from 50.1 to 50.3. The reading, driven by stronger new orders and higher employment, marked the third consecutive month in growth territory.
Employment growth was the fastest since May 2024, supported by both permanent and temporary hires, helping boost capacity alongside improving supply chains. Vendor performance improved for the fourth month as port congestion eased.
New business rose after June’s dip, with better domestic sales offsetting another drop in export orders — the fourth consecutive monthly decline. Sector performance was mixed, with gains in services and wholesale & retail countered by weakness in industry and construction.
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