The South African rand is one of my favorite currencies to play when it comes to commodities. After all, there is a huge amount of diamonds and more importantly gold coming out of South Africa, so it does tend to mirror what’s going on in the gold markets. On the attached chart, you can see that the US dollar has been claiming against the South African rand of for ages. Ultimately, this lines up quite nicely with the breakdown in the value of gold, and as a result when I trade one market, a will quite often look at the other. True, most people look at the Australian dollar as a proxy for gold, but the reality is that Australia also is highly sensitive to Asia. On the other hand, South Africa is not.
Pullback
I believe that we are going to see a bit of a pullback at this point, especially considering the gold markets have broken out during the session on Tuesday. When we broke above the $1110 level in the gold markets, I started buying futures contracts. I think there were going to go higher, probably to the $1150 level, and that should lead to a higher valued South African rand. Because of this, I fully anticipate seeing a bit of a pullback in this pair.
I think that one of the most obvious places to look for support is at the 16 handle, and then the 50 day exponential moving average which I have plotted on the chart. We also should have support at 15, and then of course the uptrend line that we have recently broken well above and gotten a bit overbought as a result.
This isn’t to say that I’m ready to start shorting this market, but rather I think this will offer a nice buying opportunity in what is an obvious uptrend. If that’s the case, you have to keep in mind that being patient will be necessary but a supportive candle has me going long. Another thing to keep in mind though, is that the South African rand is also a proxy for Africa itself, which obviously isn’t considered to be the safest place to invest. So if there’s economic uncertainty, you would have to believe that the US dollar should do better than the South African rand going forward.
