South Africa's rand has potential
July 17 (Reuters) -It's been an impressive five-month bull run for the rand and given the interest rate backdrop and improving domestic fundamentals, there could be potential for further gains versus the dollar.
USD/ZAR is threatening to break out of an 11-month range and test major support at 17.42, the low from July 2023. The range base is at 17.8600 with June 2024's 17.87 low just ahead. A 38.2% Fibonacci retracement, taken off the long-term 13.4150 to 19.9075 June 2021-June 2023 climb, is at 17.4274.
The 10-month moving average has capped this month's price action, with the subsequent pullback from 18.6650 leaving USD/ZAR hovering just below July's 18.10 opening level. The long upper candlestick shadow adding to the bearish outlook.
This week's South African Reserve Bank (SARB) meeting is not expected to deliver a change to the 8.25% benchmark rate. The SARB could be on hold for the remainder of this year while the market looks to September or November for a U.S. rate cut.
A widening yield advantage, improving domestic business environment, a three-month period with no Eskom load shedding and investor optimism following the May 29 South African election should add further to the rand's allure.
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USD/ZAR Monthly Candle Chart: https://tmsnrt.rs/4d24waf
(Peter Stoneham is a Reuters market analyst. The views expressed are his own)
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