USDZAR Forecast highlights:
- USDZAR dipped back into 18.5 after encountering resistance at 19.5
- Loss of upward momentum noted; may range sideways with downward bias
- Watch to buy USD near 18.0 and below
How has USDZAR performed recently?
Throughout the past year USDZAR traded in a fairly tight range. This is a somewhat unusual pattern. The last time the rate was this stable was back in 2019, before the rate surged from 15.0 to 19.0.
This begs the question: is the rate gathering momentum for another leg up?
USDZAR has been loitering beneath the 19.0 resistance since late 2023. While this may signal the loss of upward momentum, prices are not coming down either. A dip to 17.0 in last September was quickly followed by a sharp rebound (ZAR weaker) back to 19.0.
As long as prices are still trading close to the long-term highs, an upward breakout is still possible here.
Is it a good time to buy USD?
The South African Rand is the weaker currency compared to the US dollar.
A decade ago, it took 11 Rand to buy one USD. Now, it takes more than 18. In other words, the Rand has been depreciating against the greenback for over a decade.
Against this macro backdrop, I would not be surprised to see the rate rallying above 19.0 later this year.
Therefore, if you need to buy USD a drop into low 18s could be a good opportunity to acquire USDs, and watch to buy more in the 17 area.
Will ZAR get stronger?
Reasons behind a strong US Dollar are well known. Higher-than-expected economic growth, an international reserve currency and safe-haven asset are three main reasons.
This is not to say that the South African Rand will not appreciate from time to time. For example, during 2016-2017 USDZAR slumped from 17.0 to 12.0. In 2021 it dropped from 19.0 to 14.0.
Will we see another bullish phase for ZAR?
According to the South African Reserve Bank (central bank) latest economic report, it observed that the South African “economy contracted in the third quarter…..mostly due to an unusually large drop in agricultural production“.
“For the fourth quarter,” the bank added, “we anticipate a rebound. This will be supported by more normal agricultural production, as well as strong household spending, given tailwinds including lower inflation and Two-Pot pension withdrawals. We think this expected rebound in growth will close the output gap, leaving the economy to operate in line with its potential from the current quarter onwards.”
Finally, the bank concluded that “we expect potential growth to trend higher over the next few years. This gets growth to about 2% by 2027.“
In other words, there is scope for a medium-term bullish re-rate of the Rand. Just that the timing of this is still uncertain right now. Too much macro turbulence are clouding the rate outlook. Conditions are not yet ripe for a sharp – and sustained – ZAR revaluation.
What is the USDZAR forecast in weeks?
The market is expected a modest decline in the USDZAR exchange rate (ZAR stronger).
Most of the predictions are below the current level; with the median rate falling into 17-18 in the next few quarters.
Whether these predictions will materialise is another issue. For now, the rate is likely to consolidate beneath the resistance at 19.20.
Source: ExchangeRates.org.uk
Jackson is a core part of the editorial team at GoodMoneyGuide.com.
With over 15 years industry experience as a financial analyst, he brings a wealth of knowledge and expertise to our content and readers.
Previously Jackson was the director of Stockcube Research as Head of Investors Intelligence. This pivotal role involved providing market timing advice and research to some of the world’s largest institutions and hedge funds.
Jackson brings a huge amount of expertise in areas as diverse as global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University and has authored nearly 200 articles for GoodMoneyGuide.com.
You can contact Jackson at jackson@goodmoneyguide.com
