The USD/ZAR rebounded this week, reaching its highest level since December last year as the South African rand retreated amid the ongoing war in Iran. It was trading at 16.60 on Friday, up 6.45% from its lowest level this year.
South African rand plunges amid war risks
The South African rand and other emerging market currencies plunged this week as investors rotated back to the safety of the US dollar.
Data shows that the MSCI EM currency gauge dropped by 1.4% this week, while the same gauge on equities fell by over 6%. On the other hand, the US Dollar Index (DXY) soared and approached the key resistance level at $100 this week.
The ongoing South African rand crash is mostly because investors have embraced a risk-off sentiment as hopes of a ceasefire in the Middle East fades. The US, Iran, and Israel have continued launching missiles, a trend that may continue in the foreseeable future.
South Africa is highly exposed to the war because it depends on oil and petroleum products from the Middle East. Traffic data shows ships are no longer passing through the Strait of Hormuz, pushing oil to over $80 a barrel.
On the positive side, there is a possibility that the ongoing war will not last for months as Trump is under pressure in the United States.
Some analysts believe that he may decide to take the wins, i.e., eliminating Ayatollah Ali Khamenei and destroying key military sites. Such a move would lead to lower oil prices and a rotation back to emerging market assets. In a statement, a Citi analyst said:
“We have trimmed quite a bit of risk in the last few days but will want to get back into long EM positions on hints of stabilization.”
US jobs and inflation report ahead
The next key catalyst for the USD/ZAR exchange rate will be the upcoming US non-farm payrolls (NFP) data, which will come out on Friday.
Economists expect the upcoming report to show that the US economy added 59k jobs in February, much lower than the 110k that were added in January. The unemployment rate is expected to have remained unchanged at 4.3%.
The US will publish the upcoming retail sales data on Friday. Economists expect the data to reveal that retail sales dropped by 0.3% in January.
The US will release the latest consumer inflation report on Wednesday. Economists see the data showing that the headline Consumer Price Index (CPI) remained unchanged at 2.4%.
USD/ZAR technical analysis
USD to ZAR chart | Source: TradingView
The daily timeframe chart shows that the USD to ZAR pair rebounded to a high of 16.75 after bottoming at 15.63 in February. It formed a double-bottom pattern at 15.82 and a neckline at 16.4. A double-bottom is one of the most common bullish reversal sign in technical analysis.
The pair has moved above the 50-day Exponential Moving Average (EMA). It also moved above the key support level at 16.4, while the Percentage Price Oscillator (PPO) has risen above the zero line.
Therefore, the most likely USD/ZAR outlook is bullish, with the next key target being at 17. It will then start falling in the coming weeks as signs of the war ending emerge.
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