Relaxed U.S. Treasury Yields Augments Rand Strength

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USD/ZAR ANALYSIS

  • Subdued U.S. Treasury yields reflect in weaker dollar
  • U.S. stimulus adding to dollar woes
  • South African PMI figures on the rise
  • Key technical levels being tested

SOUTH AFRICAN RAND FUNDAMENTAL BACKDROP

After a long weekend in South Africa, the Rand has managed to extend gains as prices fell below 14.6000. Better than expected manufacturing PMI (see chart below) last week suggesting an expansion in manufacturing activity for March 2021. This being said, employment remained in a contractive state while all other sectors improved.

ABSA Manufacturing PMI

The fading U.S. Dollar continued this week after U.S. Treasury yields consolidated off last week’s highs (see chart below). The greenback declined in accordance despite exceptional economic data releases at the end of last week. This may be indicative of the economic recovery already being priced in, persistence of the U.S. stimulus package or a combination of the two.

USD/ZAR vs U.S. 10Y TREASURY YIELDS

USD/ZAR vs U.S. 10 Year Treasury yield

Chart prepared by Warren Venketas, Refinitiv

USD/ZAR ECONOMIC CALENDAR

While the next week does not contain any important South African specific economic data, there are a few U.S. announcements to look out for. This may suggest the Rand will be primarily exposed to global factors within this period so monitoring global risk sentiment and U.S. Dollar movers is key.

USD/ZAR economic calendar

Source: DailyFX economic calendar

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TECHNICAL ANALYSIS

USD/ZAR WEEKLY CHART

USD/ZAR weekly chart

Chart prepared by Warren Venketas, IG

As price action looms toward the lower end of the rectangle pattern (yellow) on the weekly chart, key support levels come into focus.

The 14.5000 psychological level which was last seen in February will be key as a confirmed break below may trigger a breakout to the downside. This level coincides with the 61.8% Fibonacci retracement level – Fibonacci taken from 2018 lows to 2020 highs which further emphasizes its importance.

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USD/ZAR DAILY CHART

USD/ZAR daily chart

Chart prepared by Warren Venketas, IG

The daily chart shows the strong downside move on USD/ZAR after last weeks break below the short-term trendline support (black). This accelerated the sharp downward move pushing below initial support at 14.6131 (now turned resistance). There may still be room for further Rand strength toward 14.5000 and 14.3967 however, this may be the exhausted around these levels as local economic afflictions may be exposed in Q2 as outlined in my ZAR Q2 Trading Opportunity forecast.

The Relative Strength Index (RSI) sits below the midpoint 50 level which maintains the bearish bias but be wary as the index approaches oversold territory (30).

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USD/ZAR: KEY TECHNICAL POINTS TO CONSIDER

  • Weekly: Rectangle pattern approaches horizontal support
  • Daily: 14.6131 resistance
  • 14.5000 support
  • 14.3967 swing low

— Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @WVenketas

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