Rand (USD/ZAR) Update: Ramaphosa to Unveil Economic Recovery Plan

USD/ZAR Price, Analysis and Charts:

• President Ramaphosa to unveil 8 priority areas in the economic recovery plan
• USD/ZAR showing short term consolidation around 16.50 and other tech levels to consider in the run up to the US election
• Finance Minister seeks one week postponement to deliver the Mid Term Budget Policy Statement citing time frames of new economic recovery plan

Economic Reconstruction and Recovery Plan: Funding Remains Key

Tomorrow, President Cyril Ramaphosa is set to present the economic reconstruction and recovery plan to a special sitting of parliament, focusing on eight priority areas.

The plan seeks to address a number of longstanding economic issues that have been exacerbated by Covid-19 and paves a way forward as we adapt to the ‘new normal’ as society transitions to a reality of co-existence with Covid-19.

Ramaphosa briefly introduced some information on the plan to a two-day Cabinet lekgotla (meeting called by government to discuss strategy planning) on the 7th of October.

Eight Priority Areas of the Economic Reconstruction and Recovery Plan:

1. Ensuring energy security
2. Having a thriving industrial base that creates jobs
3. Mass public employment programmes
4. Infrastructure that meets NDP (National Development Plan) 2030
5. Macroeconomic interventions from strengthening tax collections to tax holidays in vulnerable sectors
6. Green economy
7. Food security
8. Reviving the tourism sector

However, funding economic recovery plan poses a potential challenge as the South Africa is already running a budget deficit, expected to be in the region of 14.6% of GDP. Thursday may provide further clarity regarding exactly how these initiatives will be funded, whether it will be via public or private investment or a combination of both.

USD/ZAR: Key Technical Levels

The USD/ZAR currency pair continues to trade beneath the descending trendline from a long term perspective.

USD/ZAR Daily Chart

Chart prepared by Richard Snow, IG

Taking a closer look at the 4-hour chart – using a technique called multiple time frame analysis – there is a clear consolidation pattern where price had traded around 16.5000 (shown in the grey rectangle).

Consolidation, in some instances, precede bouts of volatility and with the US being just under 3 weeks from presidential elections there may very well be an uptick in volatility as we approach election day.

What does the US presidential election mean for the US dollar

On the 4-hour chart, a close above the 16.7700 level could spark further selling of the Rand to a degree and may see the descending trendline come back into play as a form or resistance.

However, with talks of a stimulus package in the US moving in the right direction, the prospect of a multi-billion dollar cash injection may weigh even more on what is a relatively weaker dollar. A move below 16.5000 followed by a close below the 16.3000 may see the next level of support coming in at the swing low of 16.0830 before testing the 61.8% Fib retracement drawn from the January low to the April high.

USD/ZAR 4-Hour Chart

Chart prepared by Richard Snow, IG

Finance Minister Requests Postponement of Mid Term Budget Policy Statement

Mr Mboweni has written to the Speaker of the national Assembly requesting to delay the Mid Term Budget Policy Statement by one week to account for recent developments, most notably, the economic reconstruction and recovery plan time frames.

If accepted, the statement will be presented on the 28th of October and not the 21st as originally planned.

Ensure you keep up to date with any last minute changes in economic news and events via the DailyFX Economic Calendar

Mr Mboweni faces a mammoth task as he is set to provide an update on government’s priorities over the next three years. In the supplementary budget in June, the minister already warned of a sovereign debt crisis if economic growth continued to stagnate.

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX