The rand found some short-term reprieve at the beginning of July,
although appears to remain on a weakening trajectory in the medium to long
term.
While domestic catalysts, including weak GDP, a rate cut, and a
widening current account deficit have contributed to the local currency
softening this year, the deprecation has followed risk off sentiment which has
seen emerging market asset classes mostly under pressure as well. External
narratives that have contributed to the moves include: diminishing carry trade
opportunities as the US, European and British central banks adopt a more
hawkish stance on monetary policy, and trade war tensions which continue to
threaten the state of global economic growth.
The below graph* illustrates the currency performances of the
dollar against BRICS nations (Brazil, Russia, India, China and South Africa) for
both the quarter and half-year ending 30 June 2018.
The
rand
The trends for the rand against its developed market peers are
suggesting continued weakness to come. The USD/ZAR, EUR/ZAR and GBP/ZAR
pairings highlight these weakening trends as the currencies trade above the 20,
50 and 200-day simple moving averages (MAs).
USD/ZAR
The USD/ZAR price has been finding resistance around the R13.90/$
level. A break of this level is expected to unlock a further move towards the
next level of historical resistance considered at R14.40/$. In this breakout
scenario, a close below R13.60/$ might be considered as the failure level for
the move. Only if the R13.40/$ level is broken (with a close below), would we
consider the short-term trend to be changing direction.
EUR/ZAR
The EUR/ZAR setup is similar to that of the USD/ZAR setup. The
EUR/ZAR price has been finding resistance around the R16.20/EUR level. A break
of this level is expected to unlock a further move towards the next level of
historical resistance considered at R16.65/EUR. In this breakout scenario, a
close below R15.87/EUR might be considered as the failure level for the move.
Only if the R15.60/EUR level is broken (with a close below), would we consider the
short-term trend to be changing direction.
The GBP/ZAR price setup is slightly different to the EUR/ZAR and
USD/ZAR currency pairs, in that there is a clear short-term consolidation in
the form of a triangle. Should a break above the R18.30/GBP manifest,
R18.90/GBP would be the favoured resistance target from the move. In this
scenario a close below triangle support at R17.95/GBP may be used as the
failure level for the trade. Only if the R17.75/GBP level is broken (with a close)
would we consider the short-term trend to be changing direction.
*All graph data sourced from IG.
Shaun Murison is a market analyst at IG.
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