South African Rand is boosted by risk-on mood

Goldman Sachs claims the ZAR may rise further, if global markets keep rallying. Let’s discuss it in detail.

Fundamentals

The South African Rand has depreciated a lot during the coronavirus pandemic. Indeed, the emerging economy was struggling from many different problems. The virus spread made things even more complicated. The rand has even become one of the worst performers on the Forex market so far in 2020. However, it has already managed to recover some of its’ losses. In addition, Goldman Sachs is quite confident that the ZAR will be able to continue the recovery.  

It is interesting that the ZAR has a highly positive correlation with the US stock market. The current risk-on sentiment pushed upward not only US stock indices such as S&P 500 and Nasdaq to fresh highs, but also riskier currencies. According to Investec, the rand will take further advantage of the optimistic sentiment. In the absence of negative market events, the ZAR will rise.

In addition, emerging market economies are likely to have higher interest rates than developed countries. Thus, investors are motivated to direct their capital to South Africa to get higher yields. That’s why the demand for the rand may increase. In the opposite scenario, if rates fall down, the rand will depreciate as well.

Technical tips

USD/ZAR has been trading for a while in a range between 17.3500 and 17.5000. Recently, it has broken the bottom of this range and escaped. It has approached the key support of 17.1800. The move below this level will drive the price even lower to the next support at 17.0500. On the flip side, it may rise to the resistance of 17.3500, which it has failed to cross a few times already. If it surges above this level, it may soar to the high of August 18 at 17.5000. Follow further news and join the flow!

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Author: FBS Analyst Team

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