The USD/ZAR exchange rate has crashed in the past few months, moving from a high of 19.93 in April to the current 17.60. It has plunged to the lowest level since November last year. Here are the top reasons why the South African rand has surged recently.
US dollar crash
The USD/ZAR exchange rate has declined significantly over the past few months due to the ongoing decline in the US dollar index (DXY). The dollar index has plunged from the year-to-date high of $110 to the current $96.
It has collapsed as concerns about its role as a safe-haven currency continued after Donald Trump started his trade war. Still, there are signs that these fears are being exaggerated, as it is the most widely used currency today.
It has also plunged because of the ongoing fears of Federal Reserve’s independence. Donald Trump has considered firing Jerome Powell or undermining him by announcing the next pick prematurely. Trump has also hinted that he will only appoint a Fed Chair who will cut interest rates.
The US dollar has also plunged as investors wait for the upcoming interest rate cuts. Most analysts anticipate that the bank will start cutting as soon as in September and continue the process later this year.
South Africa growth prospects
The USD/ZAR exchange rate has plummeted due to rising expectations that the South African economy will continue to grow this year.
The Treasury expects that the economy will grow by about 1.4% this year, down from the previous estimate of 1.9%. And this week, the African Development Bank estimate that the economy would grow by a palry 0.8%.
These estimates have pointed to Donald Trump’s tariffs, which will revert to 31% on July 9. Still, the ongoing South African rand strength is a sign that analysts anticipate the economy will do better than expected.
South African coalition holds
The USD/ZAR exchange rate has also crashed as the coalition government between the ANC and Democratic Alliance holds. The recent crisis started when Cyril Ramaphosa fired Andrew Whitfield from his deputy trade minister post for traveling abroad without permission.
John Steenhuisen, DA’s party leader, then pushed the president to fire ANC ministers who have been mentioned in corruption cases. Ultimately, the party’s top leadership resolved against leaving the government or submitting a vote of no confidence.
A breakdown of the coalition would have led to substantial challenges in South Africa, hurting business and consumer confidence.
SARB’s CPI goal review
The USD/ZAR exchange rate also plunged after the central bank governor said that it was about to complete a review of its inflation target. This is the first review of the target, which was adopted in 2000. He said:
“Our teams have been working very hard, they are fine-tuning the final details, and they’ll make their recommendations to the minister and the governor.”
USD/ZAR technical analysis
The daily chart shows that the USD to ZAR exchange rate has been in a strong bearish trend in the past few months. It has already formed a death cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other.
The pair has moved below the important support at 18, its lowest point on March 18 last year. Also, the Relative Strength Index (RSI) and the MACD have continued falling. Therefore, the pair will likely continue falling as sellers target the next key support at 17.03, its lowest level in October last year. Such a move would imply a 3.23% from the current level.
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