The USD/ZAR is on course for its first monthly gain since April last year as the situation in South Africa gets worse. The pair is trading at 15.2348, which is more than 5% above where it started the year at.
US dollar strength
The USD/ZAR has risen in January partly because of the stronger US dollar. The dollar index is trading at $90.68, which is 1.7% above the monthly low of $89.72.
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The greenback has risen mostly because of the risk-off approach in the market as the number of coronavirus cases continued rising. Also, the vaccine roll-out in most countries was not as fast as what experts were expecting.
As a result, many countries in Europe like the United Kingdom, Germany, China, and France launched large-scale lockdowns.
Similarly, in South Africa, a severe strain of the virus continued to spread forcing the government to implement more lockdown measures. In total, the country has confirmed more than 1.43 million Covid cases and more than 42,500 deaths.
Meanwhile, the USD/ZAR rose because of the weak economic data from South Africa. Recently, data showed that the manufacturing, mining, service, and retail sectors were under intense pressure.
Inflation is at a 16-year low. And today, data showed that the producer price index dropped from 0.4% in November to 0.2% in December. On an annualised basis, the PPI remained intact at 3.0%.
The South African rand is also falling because of the country’s fiscal situation. The government has continued to spend and borrow even as tax collections drop. Still, the SARB has signaled that it will increase interest rates later this year.
USD/ZAR technical outlook
On December 20, the USD/ZAR dropped to a multi-month low of 14.50 on December 20. It then rose and reached its year-to-date high of 15.66 on January, 11. On the daily chart, the pair has struggled to move above the YTD high and the important support at 14.77. It is also inside the Ichimoku Cloud and slightly below the descending blue trendline. It is also on the same level as the 50-day exponential moving average.
Therefore, the outlook for the USD/ZAR is relatively neutral. If it breaks above the highest point this year, bulls will be motivated to keep pushing it higher, possibly to 16.00. On the other hand, if it moves below the support at 14.77, it will attract more bears. Therefore, consider using the risk management tools provided by your CFD trading broker.
