The USD/ZAR went for an elevator ride up in the month of May. Not only was the 18.00000 range not tested lower, but a lightning bolt type of price velocity hit the USD/ZAR as it ripped higher. The currency pair erupted over the 19.00000 value on the 11th of May and continued to test new record values on the following day, since then the move higher has not stopped.
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The 19.00000 level from about the 11th of May until only last week on Thursday the 25th, felt like the USD/ZAR may test a range between 19.10000 and 19.35000, but this illusion has shattered too. After the U.S Federal Reserve’s FOMC Meeting Minutes report was published last week and confirmed that the central bank is still considering higher Federal Funds Rates, the USD/ZAR soared again. As of this writing the USD/ZAR is traversing near the 19.75800 vicinity with its typical fast trading being exhibited.
The U.S Federal Reserve is Not the Only Factor within the USD/ZAR
Traders should not get solely focused on the rhetoric of the U.S Federal Reserve when considering the price range of the USD/ZAR and its potential direction in the month of June. The USD/ZAR unfortunately has another major factor which is eroding the value of the South African Rand. The government of South Africa continues to fail in its effort to create a steady supply of electricity for its citizens and businesses. Rolling blackouts have been in practice for over a decade in South Africa, but in the past few months the situation has grown worse.
While major business enterprises in South African suffer economically, this has an effect on the Gross Domestic Product of the nation. The lack of reliable electricity in South Africa is hitting its biggest corporate enterprises, including mining companies which supply gold and diamonds to the world. The hit on production is causing a drop in the wealth of South Africa and if the electrical supply problem worsens, these mining companies have warned they will continue to reduce working hours.
- The move higher in the USD/ZAR has been affected by the U.S Federal Reserve’s aggressive rhetoric regarding interest rates and the Fed will conduct its next Federal Funds announcement on the 14th of June.
- The new apex values of the USD/ZAR do not look like they will suddenly disappear in the near-term and traders looking for downside price action should be cautious.
- Yes, the USD/ZAR is still seeing reversals lower to be taken advantage of by technical traders who think the currency pair is sometimes overbought, but quick hitting trades are advised for speculative bets lower.
USD/ZAR Outlook for June 2023:
Speculative price range for USD/ZAR is 19.33000 to 20.10000
Traders should not close their eyes to the possibility the USD/ZAR could trade lower. The fundamental rules of Forex have not changed. Currency pairs do trade in both directions and the USD/ZAR is certainly able to move lower on occasion. However the 19.00000 level appears to have become a new higher support level and it might prove durable moving forward until there is a structural change in South Africa which starts to eliminate fears of infrastructure collapse.
Only last month the 18.00000 level was in sight and seen as a distant support level for the USD/ZAR, the change in attitudes surrounding the USD/ZAR have not come as a surprise to the people of South Africa. Support near the 19.40000 should be watched to see if it is tested in the coming week, if not, this will not be a good sign for bearish traders thinking about lower values in the near-term.
If the U.S Federal Reserve does raise its interest rate on the 14th of June, the move higher in the USD/ZAR the past week likely is a reflection of this increase in the Federal Funds Rate already. However, if the U.S central bank not only raises its interest rate, but also says it will continue to remain hawkish moving forward this could put more upwards kick into the USD/ZAR and cause the currency pair to move higher.
Traders should be cautious with the USD/ZAR within its current levels. One month ago the prices now being displayed would have looked extremely high, now they look somewhat realistic. The USD/ZAR has battles ahead because of the U.S Fed, but also because of the rolling blackouts in South Africa which continue to escalate. Looking for additional moves upwards in the USD/ZAR may seem like the correct wager, but traders should practice solid risk management and not be overly aggressive.
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