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South African Rand Tests Key Support as Dollar Eyed for Directional Clues

- USD/ZAR tests chart resistances after risk currency slide
- USD rally, China concerns & SA data driving ZAR’s losses
- GBP/ZAR rises as USD/ZAR eyes 14.58-14.82 resistances

South African Rand outlook

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  • GBP/ZAR reference rates at publication:
  • Spot: 20.17
  • Bank transfer rates (indicative guide): 19.46-19.60
  • Transfer specialist rates (indicative): 20.00-20.06
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The South African Rand was testing notable support levels including its 200-week moving-average in the final session of the week as a days-long sell-off in risky currencies appeared to wane, leaving some analysts eyeing the U.S. Dollar for clues on the short-term outlook.

South Africa’s Rand was on course Friday for its largest one-week decline against the U.S. Dollar since the middle of August after American retail sales data for last month gave the greenback a fresh impetus on Thursday for gains over almost all currency counterparts.

Strong U.S. economic data had also been a prominent driver of August’s brutal sell-off too, although there’ve been other factors at play alongside that this time out including losses for other risk assets like stock and commodity markets as well as uncertainty about the implications of events in China.

"Local data appears to be responsible for the move. July retail sales printed significant at -11.2%YoY versus consensus expectations -2.7%. Profit-taking could also be a factor given the rand's latest series of gains since late August," says Yiran Cao, a quantitative strategist at CitiFX

South African retail sales figures missed economist expectations by a country mile for July when released on Wednesday, although this was the month in which parts of the country were blighted by violent and destructive civil unrest and stringent coronavirus-related curbs on activity.

USD ZAR

Above: USD/ZAR trades above 55 and 200-day moving-averages as well as the 50% Fibonacci retracement retracement of late August’s fall as GBP/ZAR also rallies.

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Analysts at firms in South Africa itself see the Rand’s losses as resulting from global factors, as locals had long expected poor domestic figures for July.

“Mixed outcomes on global data, a general souring in risk sentiment and a softening in commodities prices relevant to SA has left USD/ZAR stranded at 14.60 at the time of writing,” says, Nema Ramkhelawan-Bhana, head of research at Rand Merchant Bank, in a Friday note. “At 14.66, resistance is within reach, yet it’s unlikely that the unit will breeze through this level unless there is strong follow-through by the US dollar.”

Ramkhelawan-Bhana and the Rand Merchant Bank team are eyeing the Dollar for clues on the short-term outlook for the Rand into and beyond next week’s monetary policy decision from the Federal Reserve after USD/ZAR rose above its 55 and 200-day moving-averages on the charts.

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This has lifted the Pound-to-Rand rate back above 20.00 even as Sterling itself posted losses against a range of currencies including the Dollar.

With U.S. and South African economic data aside, one possible contributor to this week’s losses is the solvency and possibly imminent collapse of China’s largest property developer Evergrande.

“It’s likely that the matter will be dealt with amicably by Chinese authorities. However, it could compromise the government’s efforts to foster discipline among borrowers in the long run,” says Rand Merchant Bank’s Ramkhelawan-Bhana.

ZAR exchange rates

Above: USD/ZAR and GBP/ZAR shown at weekly intervals. USD/ZAR rises to test its 200-week moving-average at 14.64 ahead of the weekend.

The company has $110BN of unaffordable debts and some $298BN of total liabilities that it may not be able to meet without restructuring and has been widely cited by analysts as a driver of losses in global markets as well as for gains by the U.S. Dollar.

However, fears about a possible ‘hard landing’ or fall of the Chinese economy have been a recurring theme for financial markets in the past and in each instance, calamity and catastrophe have been averted.

“We expect the dollar to instead take its cue largely from Powell’s comments on tapering. Following the August employment miss, we think that an official taper announcement this month is now in serious doubt,” says Matthew Ryan, CFA and senior market analyst at currency broker and international payments firm Ebury.

“Most FOMC members appear comfortable with policy normalisation commencing this year, but the clear labour shortages and uncertainty surrounding the delta variant may, we think, push the taper decision to November. This, in our view, may be bearish for the dollar,” Ryan wrote in a Friday note.

While the Dollar was clearly boosted on Thursday by strong retail sales data, lifting USD/ZAR and GBP/ZAR in turn, it’s not so much a retail sales recovery that the Fed is seeking to foster with its monetary policy as it is a repair of the job market and restoration of pre-pandemic employment levels.

With this being the case there’s scope for next Wednesday’s 19:00 policy decision to weigh on the greenback as well as USD/ZAR and GBP/ZAR after the U.S. nonfarm payrolls report for August showed the pace of labour market repair slowing sharply when released at the beginning of September.

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