- As the month of July concludes the USD/ZAR has experienced a rather telltale month of trading.
- The worries of late June regarding political uncertainties have been calmed and the new political coalition of South Africa is working for now.
- The USD/ZAR did see highs around the 2nd of July which touched the 18.66000 vicinity but then incrementally started to move lower.
By the 12th of July the USD/ZAR was trading near a depth of almost 17.91000. The downwards trajectory did not remain durable however, and the currency pair then began to inch higher as financial institutions showed a rather comfortable give and take in Forex. The 18.55000 ratio has come into sight the past week a couple of times, but reversals lower have also been demonstrated. While South Africa continues to face domestic economic issues and questions about transparency, for the time being it appears financial institutions are trading with a mindset which is looking at fundamental factors that are not overly nervous and are actually optimistic.
Correlation to USD Centric Outlook
The USD/ZAR will be affected heavily by outlook regarding the U.S Federal Reserve and the upcoming FOMC Statement, which will be issued at the very end of July is going to have an affect on the currency pair. The Fed is likely to suggest that it is going to cut the Federal Funds Rate in September, and this has largely been traded into the USD/ZAR already. What financial institutions would like more clarity about is the Fed’s outlook for the end of this calendar year
The ability of the USD/ZAR to trade higher and then reverse lower when the 18.55000 realm has come into sight is important. What will be significant in the days and weeks ahead is if the resistance levels above can start to incrementally decrease. If the 18.41000 ratio can start to prove durable this would be a signal additional selling sentiment may linger within the mindsets of financial institutions which believe the USD/ZAR can trade lower.
The depth of 17.91000 which was hit in early July may have been overly eager bearish momentum taking hold, but it also may be a signal that the currency pair can still traverse downwards. The fact that the USD/ZAR may now be able to correlate to USD centric sentiment and not be as affected by South African worries in the coming month could help bearish momentum too.
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USD/ZAR and the Federal Funds Rate
U.S economic data has been slowing down. Yes, the GDP did come in higher from the U.S last week regarding growth, but the Price Index numbers were lower than expected and this is an important sign for the Federal Reserve. If the Fed signals they will cut interest rates in September and consider another rate cut later this year this could help the USD/ZAR create some selling power which could generate a retest of the 18.20000 level and lower.
- The USD/ZAR may have sold off too optimistically in early July, but traders leaning towards bearish attitudes in August may not be wrong.
- While the currency pair may not create fast price velocity downwards, moves higher may create the opportunity to look for reversals lower which continue to test price equilibrium and challenge support below.
USD/ZAR Outlook for August 2024:
Speculative price range for USD/ZAR is 17.85000 to 18.70000
Importantly for the USD/ZAR, upside looks less dangerous than it has in a while. The ability of the currency pair to traverse only towards resistance levels around the 18.66000 area in early July is a solid sign that optimism is building among financial institutions dealing with the South African Rand. No, wine and roses are not being distributed yet for the South African Rand, but the ability to seemingly create a cap of resistance near the 18.50000 ratio in many respects should be looked at technically.
Yes, something surprising could happen regarding the political coalition in South Africa which could change circumstances, but if the higher threshold remains calm and is not penetrated with violence, perhaps the price realm of 18.10000 to 18.35000 will take hold. Traders should not get overly ambitious regarding their selling optimism of the USD/ZAR. However, they might want to test the waters with selling positions if the value of the currency pair sees sustained lower moves in which resistance levels incrementally decrease in the weeks ahead.
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