Rand (ZAR) Update: Funding the Recovery Plan, Budget Speech in Focus
South African Rand Analysis:
- The ZAR regained all of its lost ground after the announcement of the recovery plan
- USD/ZAR continues to oscillate around the 16.50 mark
- Focus shifts to the delayed Medium-Term Budget statement later this month which is set to reveal how the economic recovery plan is to be financed
ZAR Regains Lost Ground in the Wake of the Recovery Plan Announcement
The USD/ZAR pair has continued to trade within the broader range, between the 38.2% and 61.8% retracements drawn from the January low and April high. The longer term descending trendline remains intact as price action reverted back toward the 16.5000 level after attempting a move higher. The Rand managed to claw back all of the ground lost against the USD in the lead up to the recovery plan, even trading below 16.5000.
USD/ZAR daily chart
Chart prepared by Richard Snow, IG
The recent reluctance to trade away from 16.5000 for extended periods of time may be symptomatic of a market needing a catalyst.
Main Risk Events for the ZAR
- SA Unemployment Data Q3 (October 27): Q2 unemployment data showed an improvement from 30.1% to 23.3% due to many discouraged work seekers falling outside of the calculation. The recovery plan looks to target unemployment however, the plan has not yet been implemented yet and most likely won’t have a significant effect on Q3 unemployment data.
- Medium-Term Budget Speech (October 28th): Minister of finance Tito Mboweni has a mammoth task of reporting on the current budget as well as making allowance for the funding requirements for the recovery plan even though the plan seeks outside investment in conjunction with public funding.
- S&P Credit Rating Review (November 20th): South Africa had its credit rating demoted into sub-investment grade by S&P Fitch and lastly, Moody’s in March this year and the November review may present greater ZAR volatility as nation continues to struggle with growth and unemployment.
- US Presidential Elections (November 3rd): Any shocks or delays in the lead up to the presidential election is likely to have an impact on the ZAR and other emerging market currencies.
For all market-moving data releases and events see the DailyFX Economic Calendar
Key Technical Levels for USD/ZAR
In the lead up to the recovery plan, the Rand weakened against the USD only to regain all that lost ground and actually trade lower - at similar levels witnessed before the announcement.
Continued ZAR strength may test 16.4450 as initial support and presents a litmus test for a potential move lower. A close below 16.4450 brings the next zone of resistance (16.3000 – 16.3550) into play.
Should 16.4450 hold, this may then see price action revert towards 16.5000 once more. 16.5500 becomes the next level of resistance and further upward momentum would bring the 16.7700 level into focus.
USD/ZAR 4 Hour Chart
Chart prepared by Richard Snow, IG
President Cyril Ramaphosa revealed the economic reconstruction and recovery plan last Thursday and now the focus shifts to the Medium-Term Budget Speech which has been delayed to the 28th of this month in order to make provision for the initiatives mentioned in the president’s plan.
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.