The USD/ZAR Humbled by Psychological Resistance at the Close
The USD/ZAR owes its latest bout of losses to the aforementioned psychological resistance, not to mention a flurry of other negative factors affecting the world’s biggest reserve currency. In particular, South Africa’s economy has been hit hard by an influx of funds from overseas, as well as by the nation’s worst coronavirus outbreak in history.
The Rand has borne the brunt of the economic storm, with imports dropping 7.8% to ZAR 93.9 billion in the month of January. Despite this, GDP grew a measly 2.5% during the year’s first quarter, which is not exactly impressive considering that EM economies have been on the ropes for some time now.
As for the central bank, the SARB opted to take its time with its latest monetary policy announcement. As expected, the most notable move was to raise its benchmark interest rate by 25 basis points from 3.5% to 3.75%.
Despite the aforementioned rate hike, the Rand was on the losing end of the stick against the Dollar and many of its peers. The currency is still on the ropes in a variety of markets, with political unrest and economic uncertainty weighing heavily on sentiment. In the short-term, the aforementioned top down correction is unlikely to be reversed and the local currency will remain under pressure for some time to come. A more realistic assessment of the situation is to expect the aforementioned downturn to resume in earnest later this week and to wait for a stronger signal from the Fed before putting your money where your mouth is.
