Expert Analysis by Louis Schoeman – SA Shares
Metrics and Current Drivers
The South African rand (ZAR) has recently seen significant fluctuation in the exchange rate against the United States dollar (USD), primarily as a result of an address by the South African Reserve Bank (SARB) earlier in September when concerns were raised regarding the inflation target. According to SARB Governor, Lesetja Kganyago, inflation should be lowered from the current 3% – 6% to 3% – 4%.
Recent fundamentals have shown a significant backdrop in ZAR, which has led to further depreciation against the USD, with the Evergrande default remaining. The interest payments for Evergrande were due on September 23, for the March 2022 bond, which amounted to $83.5 million (1.2 billion ZAR).
According to Louis Schoeman, Market Expert at SA Shares, South Africa’s 10-year government bond yields have spiked significantly. This can be attributed to investors reverting to safe haven assets which have contributed to declines in price actions for ZAR. Iron ore, which is one of South Africa’s primary exports, has been shaped by the Evergrande situation with China as a primary partner.
In addition to iron ore, platinum was trading much lower because of a stronger USD, which could gain further traction if the Federal Reserve decides to announce reductions in asset purchases.
The South African price inflation has risen to 4.9% year-on-year (YoY), with core inflation (excluding food, non-alcoholic beverages, fuel, and energy) increased to 3.1%, another factor that contributed to the ZAR losing traction against the USD.
In the past trading week, the USD/ZAR charts indicated exponential rises in the pair, with the Relative Strength Index (RSI) well above the 50-level midpoint, which indicated strong bullish momentum, with enough room to the upside.
There was also a bullish crossover which was signalled by the Exponential Moving Average (EMA), with a 20-day crossing above the 100-day.
During the past 24-hours, the technical analysis on USD/ZAR is on a strong buy, while candlestick patterns indicate a strong sell. The moving averages MA5 is currently on a 14.8 while RSI is on the 64.4 level, with Stochastic 9,6 on 81.282, and the Ultimate Oscillator on 62.65.
Trend oscillators Moving Average Convergence Divergence (MACD) are currently on 0.090, with Bull/Bear power on 0.3, both indicating a Buy action on USD/ZAR and a buy action indicated by the volatility index.
All elements indicate that there are bullish market conditions, which may be suitable for traders who wish to trade long positions on USD/ZAR, given that the price remains above 14.8 ZAR. 82.29% of signals that are given by moving averages are bullish and the overall trend is supported by additional bullish signals from short-term moving averages.
The bullish objective of buyers is currently on 15.2 ZAR and if there is a bullish break in this resistance, it is anticipated to boost the bullish momentum. Once this happens, buyers can target the resistance at 15.4 ZAR. If there is a crossing, the next objective would be the resistance located at 16.8 ZAR. However, traders are warned of bullish excesses that may lead to short-term correlation, which would make correction untradeable.