The election is in the rear view window for South Africa, but coalition talks remain problematic and the USD/ZAR is likely to face the brunt of behavioral sentiment shifts in July.
- The USD/ZAR (dollar to African rand) finished trading this past Friday around the 18.18070.
- While finishing the month of June within sight of the currency pair’s lower realms, traders who have been paying attention know the speculative waters of the USD/ZAR were filled with quick changing tides of momentum.
- A low of nearly 17.87000 was touched on the 21st of June, this was followed by a reversal higher which ensued most of last week and hit a mark of nearly 18.52450 this Friday on the 28th of June.
The South Africa election produced a result which brought diverse political parties to the table in order to reach what they have called is a National Unity Government. Unfortunately, the talks between the African National Congress and Democratic Alliance are still ongoing, and there are warning sides that negotiations remain difficult as ministerial cabinet seats are being decided. The ANC is treating the DA like a junior party and it is becoming clear the Democratic Alliance should have gotten some formally agreed upon mandates before officially joining a coalition partnership with the African National Congress.
Discussions and Volatility to Come for the USD/ZAR
The South Africa Parliament is set to start its new legislative session on the 18th of July and it could be that National Government Unity talks will be discussed up until the last minute. The USD/ZAR slid from this Friday’s early highs and back into lower territory, perhaps on hopes disagreements will be worked out over the weekend leading into the 1st of July. However, for the moment there is no clarity.
Earlier in June when the election results were known, but the coalition frameworks were still an open question the USD/ZAR charged higher and hit an apex around 19.00000 on the 6th as fear escalated. From that Thursday onwards however, the USD/ZAR began to create a dynamic bearish trend until touching the low seen on the 21st. The high and low achieved during that two week period highlights the potential fears and renewed hopes financial institutions are encountering and considering. And until a firm South Africa coalition accord is announced in which the ANC and DA say there is an agreement in place regarding a working government, the USD/ZAR is certain to traverse a volatile price range.
USD/ZAR and the Risks of Walking Away from a Coalition Agreement
It would be a bad conclusion if the Democratic Alliance and ANC cannot find a real working relationship in the coming weeks. Traders and financial institutions must remain cautious until there is certainty. Day traders may interpret this past Friday’s downturn in the USD/ZAR as a signal some financial institutions know or are wagering on the announcement that a final deal has been reached between the African National Congress and DA.
- However, no formal announcement has been heard as of this writing.
- If a constructive ministerial cabinet posts agreement is approved it will likely cause the USD/ZAR to selloff and resume a challenge to lows seen late in third week of June.
- Yet, if things go badly, financial institutions could punish the USD/ZAR and take it to new heights depending on the seriousness of uncertainty that is expressed by the political parties.
- No one is expecting paradise in South Africa, what people are hoping for is a pragmatic plan.
USD/ZAR Outlook for July 2024:
Speculative price range for USD/ZAR is 17.65000 to 19.35000
The USD/ZAR could remain volatile the first couple of weeks in July. If an agreement is publicly announced between the ANC and the DA financial institutions will breathe easier. If no agreement is made and the coalition agreement actually disappears, then the USD/ZAR will face a whirlwind of profound trading throughout July and not only the 19.00000 level may be seen, but a retest of ugly highs could be demonstrated.
Speculators may want to remain optimistic for the moment and lean towards the notion of better days in South Africa. It seems hard to believe the ANC would gamble on the DA walking away and trying to form another coalition which is not perceived well by the public, but it could happen. Risk management and quick trading tactics are strongly advised until there is solid evidence a working government coalition has been agreed. The USD/ZAR will provide drama in the coming weeks.
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