The exotic pair of the U.S. Dollar to South African Rand (USD/ZAR) has not correlated strongly with other USD pairs since this year. The USD has been down 1.3% against the ZAR since the beginning of the year. All the while, the USD index has been super bullish, up 6.1% YTD.
While performing better than the GBP, EUR, and other major partners, the USD is still trading just under last November’s high. With the seasonal tendency of the USD to weaken over the Northern hemisphere’s summer months in combination with the strong trend-bucking Rand, Is it looking unlikely that the USD will take out those highs over the coming months?
The main reason for the ZAR’s strength is the interest rate hikes emanating from the South African Reserve Bank (SARB). Last Thursday, the SARB raised rates to 4.75% with a 50 basis point hike, the highest single increase South Africa has seen since 2016.
The announcement was already priced into the USD/ZAR since there was little volatility that followed. Several more aggressive rate hikes are expected from the SARB, with at least another 50 basis point rise over 2022 and 100 basis points over 2023.
USD/ZAR - Technical Perspective
On the charts, we can see the pair is floating just below the high created in November 2021. This month, we've seen a new range created to which the Fibonacci tool is anchored. There is also an Elder's Force Index (EFI) indicator on the bottom window.
This indicator is concerned with the previous day’s opening and closing prices in relation to volume. Overbought and oversold conditions can be ascertained when the indicator moves above or below the zero line.
At this writing, the USD/ZAR is sitting above the 78.6% retracement level, with the EFI below the zero line. If the price takes out last November’s high, then we will need to see sustained support at this level. Ever the contrarian, the USD/ZAR may disregard the oversold EFI confluence and continue on its path below the 78.6% level.