USD/ZAR Key Points:

MOST READ: USD/ZAR Rallies as SA President Ramaphosa Faces Potential Impeachment

USD/ZAR FUNDAMENTAL OUTLOOK

If we are to learn anything from USD/ZAR price action over the past month it would undoubtedly be that the South African Rand remains driven by the political situation prevalent in the country. We have been subject to some interesting price swings of late following the release of the ‘Phala Phala report’ as well as in the build-up to the ANC elective conference. This week the ZAR is well on its way to posting 5 consecutive days of gains as more news filters through from the ANC conference held over the weekend.

PRESIDENT RAMAPHOSA CEMENTS HIS POSITION

The ANC National Elective Conference did not throw up many surprises over the weekend with President Cyril Ramaphosa cementing his position for a second term. The President saw off a challenge from Zweli Mkhize for party leader while most key positions among the newly formed top 7 are occupied by ‘Ramaphosa allies.’ As the National Executive Committee (NEC) was announced during the course of the week it became clear to political commentators that around 57 of the 80 NEC seats have also gone to ‘Ramaphosa allies’. This should serve to make the President’s job easier as he looks to keep up the fight against corruption as the NPA have shown signs of fight and action in recent times. Markets have clearly been buoyed by the news out of the conference as USD/ZAR has fallen from R/$17.72 (Mondays high) to today’s low R/$17.04 (at the time of writing).

There remain a few areas of concern with some NEC members not as clean as one would like, but then again this is politics. The continuity of policy is sorely needed as the ANC continues to face significant headwinds as we head into 2023. The recent Federal Reserve announcement may weigh on the ZAR as we begin 2023, given it is historically a strong month for the US dollar. Eskom on the other hand remains a major sticking point holding the South African economy back and will be a major obstacle to further ZAR appreciation against the USD. Eskom reported a fifth consecutive loss this afternoon with the utility recording losses of R12.3 billion in the year through March, compared to R25.3 billion a year earlier. The auditor’s report compiled by Deloitte expressed concern that the company may not be able to continue operating stating it had identified irregular expenditure, fruitless and wasteful costs and losses due to criminal conduct. The resignation of CEO Andre De Ruyter has already added jitters among the business community with today’s report only expected to add further concern. There is no doubt that a swift plan of action is needed in the new year with CEO De Ruyter expected to step down in March.

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There remains some US data out later today in the form of US Core PCE as well as the final Michigan Consumer Sentiment data with further positive readings likely to add some dollar strength as it would further strengthen the case for the continued tightening of monetary policy. However, between now and the New Year we could very well remain rangebound between the R/$17.00 and the R/$17.62 handles.

TECHNICAL OUTLOOK

Looking at the daily chart below we can see near term support resting just below the psychological R17.00 level around R16.95.A break and close below should lead us to a test of the 200-day MA around R16.70. This would be significant as the USD/ZAR has not touched the 200-day MA since June with a break lower bring support at R16.35 into play.

Alternatively, a push higher from here faces significant resistance around R17.50 with both the 50 and 100-day MA resting around there as well. I remain wary given the dollars historical performance in January that further downside may come into fruition if it doesn’t occur before the new year.

USD/ZAR Daily Chart, December 23, 2022

Source: TradingView, Prepared by Zain Vawda

— Written by Zain Vawda for DailyFX.com

Contact and follow Zain on Twitter: @zvawda