South African rand looks set to remain strong short-term

Ahead of the South African Reserve Bank’s monetary policy meeting, the rand has started to resume strength against its major currency peers. With lending rates expected to stay unchanged, the drivers appear to be external.

South African rand
Source: Bloomberg

The South African central bank is expected to leave lending rates unchanged at its next policy meeting, and therefore the renewed strength for the rand appears to be driven by external rather than domestic catalysts. Gains in the rand are accompanying gains in other emerging market currencies, as short-term appetite for riskier assets improves and the near certain December increase in US lending rates appears mostly digested.

The chart below shows the rand’s performance against the US dollar and reflects how the market is summising all the external and domestic catalysts. 

Since about September, USD/ZAR has been trading in a broad range between R14.75/$ and R13.19/$. The pair now looks to have formed a reversal near the resistance of this range, which is highlighted blue. The price reversal is supported by the stochastic crossing out of overbought territory.

These are bearish indications in technical analysis terms and these favour short-term dollar weakening against the rand. R13.40/$ becomes the initial support target favoured for the currency pair, a break of which further favours a move to R13.19/$.

However should USD/ZAR instead move to close above resistance at R14.75/$, the bearish indications for the pair highlighted would be deemed to have failed. 

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.