- Initial USD boost after Trump’s COVID announcement
- Rand holds steady before Non-Farm Payroll (NFP)
- Rise in volatility expected going into US elections may affect ZAR appeal
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This week has seen five continuous positive days for the Rand, appreciating roughly 3.25% against the US Dollar. Today has changed the tone of global market sentiment as President Trump announced that the First Lady and himself are COVID-19 positive. This has resulted in a systemic affect across global markets with investors going on the defense. Global equity indices are down this morning with traditional safe haven assets (spot gold, JPY) up for the day.
The Volatility Index (VIX) spiked to +/-9% but has since retraced. This unforeseen announcement exhibits the Rands sensitivity to global economic and risk appetite as investors move away from riskier assets.
USD/ZAR TECHNICAL ANALYSIS
( 12:10 GMT )
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USD/ZAR daily chart:
Chart prepared by Warren Venketas, IG
The daily USD/ZAR chart above shows price respective of diagonal resistance (blue). USD/ZAR bulls have attempted to break above this resistance line on three occasions with no success. Since June 2020, the Rand has been trading in a range between the 38.2% 16.3444 and 23.6% 17.4888 Fibonacci levels. However, with the diagonal resistance (blue) coming into play mid-range, the topside of the respective range may not see any short or medium-term price action.
If USD/ZAR is to appreciate on the back of better than expected NFP data or safe haven appeal, initial resistance can be expected at diagonal resistance once more. The green support zone (around 16.5500) has established itself as a key area of confluence since the end of August and a break below could see USD/ZAR bears eye the 16.5000 psychological level.
SOUTH AFRICAN RAND FACES UPHILL BATTLE DESPITE STRONG WEEK
With many positive high impact South African economic events this past week, the Rand has gained favor with global investors along with a supportive global appetite. Better than expected unemployment and balance of trade figures have elevated the ZAR to current levels. South Africa has provided a trade surplus (exports > imports) of R38.87B after an estimate of just R29.7B. The relatively weaker Rand due to the global pandemic may have been a large contributor as locally produced goods become ‘cheaper’ for foreign buyers.
These positive economic factors have proven encouraging for the ZAR but going forward, structural reforms and the continued fight against corruption will be key to carry the currency back to pre-COVID levels. Although Emerging Market (EM) currencies are heavily swayed by global market conditions, the South African Rand can push back against negative swings with sound economic policies and implementation which could increase investor confidence.
US STIMULUS, NFP AND PRESIDENT DONALD TRUMP
Hopes of additional stimulus from the US has provided a tailwind for the ZAR which has catapulted the local currency as one of the top performing EM currencies this week. However, with the US President testing positive for the coronavirus, this may hinder its progress over the next few weeks as market participants wait in anticipation on the Presidents approach going forward.
With the US being arguably the most influential country in the world in terms of financial markets, this news announcement may well sustain the risk aversion evident in todays markets. The perceived disruption in President Trump’s ability to lead the country may see investors flocking toward safe haven assets. The Rand could take a negative hit which could be prolonged going into the US elections.
NFP data is scheduled to release later today (12:30 GMT) with a forecasted 875k new jobs to be added last month. This may be depressed by US elections, Trump’s COVID announcement as well as the Fed’s Average Inflation Targeting (AIT) policy. However, according to Bloomberg’s whisper function, market participants may be eyeing a significantly larger 1000k new jobs to be added. This potentially higher payroll figure may prove supportive of the US Dollar.
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USD/ZAR: KEY POINTS TO CONSIDER MOVING FORWARD
Next week will have investors focus on the upcoming FOMC minutes as well as the effect of the virus on President Donald Trump’s ability to lead as well as his election campaign. With no expected announcements or data out of South Africa next week, USD/ZAR investors should keep a close eye on global risk events with greater focus on the US.
- Diagonal resistance
- 16.5500 support zone
- Upcoming NFP data
- Expected volatility throughout October
— Written by Warren Venketas for DailyFX.com
Contact and follow Warren on Twitter: @WVenketas