As South Africa moves out of recession, where now for the rand?

South Africa has moved out of a technical recession, according to the latest economic growth figures. So where does that leave the South African rand? 

Rand notes
Source: Bloomberg

South Africa has moved out of a technical recession, with Gross Domestic Product (GDP) growing 2.5% in the second quarter, well ahead of expectations for a 2.0% rise. That was a strong turnaround after the South African economy contracted by 0.7% and 0.3% quarter-on-quarter in the previous two quarters, respectively.

The primary sector led the economic growth in the second quarter, growing 10.3%. That was led by the agriculture and forestry sector, which surged 33.6% thanks to a recovery from drought conditions and a record maize yield. The improved weather conditions are expected to benefit the agriculture sector further in the third quarter as maize crops are expect to produce near-record yields once again. Elsewhere, the mining and quarry industry grew 3.9%, while the manufacturing sector grew 1.5%.

Technical analysis for the rand

The rand reacted favourably to the economic data, strengthening most noticeably against the US dollar, which comes under pressure across the board after further dovish comments from Federal Reserve officials, as well as weaker-than-expected US economic data. 

The USD/ZAR pair once again tested the R12.85 support level on the daily chart, although it bounced quickly from this point. The black arrows show the long lower wicks on the candles touching this level. The currency pair is looking oversold at this level as well. These indicators suggest a rebound in the USD/ZAR from current levels, targeting a move to resistance at R13.14. A close below R12.80 would be considered a failure of this. 

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