Lengthy USD/ZAR: Aggressive Fed Marking the Finish of the Highway for Resilient Rand?
After a powerful Q1 in 2022 for the ZAR (which has been the development over the previous few years), the rand may very well be in for a turnaround. Earlier than delving into potential Q2 influences you will need to remind ourselves of the rand’s latest assist:
–Conflict in Ukraine driving provide issues.
–Larger commodity costs (specifically rand-linked exports resembling iron ore, gold, platinum and coal).
–China’s relative resistance to geopolitical tensions in Europe – major buying and selling companion with South Africa.
These 4 main components will stay key influences going into Q2 with some possible adjustments which can skew forecasts in favour of the greenback. The primary and most necessary for my part is the Fed’s pivot to a extra hawkish stance. Fed Chair Jerome Powell has opened up the chance for 50bps hikes going ahead whereas cash markets are at present pricing in roughly 250bps of Fed tightening for 2022!
Whether or not the US financial system can deal with tightening of this severity is one other query altogether however what we will deduce is that the Fed and SARB’s fee hike path will differ drastically. As well as, it may be mentioned with certainty that the South African financial system can not address such drastic tightening measures.
The graphic beneath reveals the present method from the 2 central banks. With present expectations, we’re more likely to see the Fed funds goal fee (purple) steepen far faster than the South African repo fee. As well as, USD/ZAR tends to development greater in Q2 (traditionally talking) and this may occasionally effectively unfold in Q2 2022.
USD/ZAR Vs. U.S. & South African Curiosity Charges (2012 – current)
Chart ready by Warren Venketas, Refinitiv
China’s bearing on the rand is critical however with the implementation of strict lockdowns because of the unfold of COVID-19, demand from China might decline leaving the rand open to additional draw back – limiting commodity positive factors.
USD/ZAR Weekly Chart
Chart ready by Warren Venketas, IG
The weekly USD/ZAR chart reveals worth motion buying and selling beneath the important thing 15.0000 psychological assist stage for the primary time since late 2021, slumping to yearly lows across the 14.5030 38.2% Fibonacci assist stage –taken from February 2018 lows to April 2020 highs. Whereas there may be nonetheless room for short-term rand power I anticipate a rebound from the greenback opening up room to push greater in the direction of the 15.0000 deal with as soon as extra.
Key resistance ranges:
–EMA’s (20, 50 and 100-day)
Key assist ranges: