ZAR FUNDAMENTAL BACKDROP
The rand has been holding its own this week on the back of a weaker US dollar and stronger commodity prices. The dollar has come under pressure after softer ADP and a mixed ISM services print (weaker employment and pricing data).
Rand-linked commodities have remained elevated including platinum, iron ore, coal and gold giving a boost to the local currency.
Looking forward the divergence in tightening between many Emerging Market (EM) central banks peers (see graphic below) and South Africa may hurt the ZAR once Fed tightening picks up. South Africa’s carry trade appeal is much lesser than the below mentioned peers giving more incentive for investors to look at these countries for a higher yield than South Africa – detrimental to ZAR.
INTEREST RATES: BRAZIL, RUSSIA AND SOUTH AFRICA (GREEN)
The economic backdrop in South Africa has been yet again been stifled by periodic blackouts (“loadshedding”) placing an additional headwind on the rand.
Later today, the focus shifts to U.S. NFP data which could provide some short-term volatility around the announcement. Recent prints have disappointed and have shown a gradual decline in new jobs. This weeks estimate sits at 150K and any notable shift from this could result in considerable price fluctuations on USD crosses.
Source: DailyFX economic calendar
USD/ZAR DAILY CHART
Chart prepared by Warren Venketas, IG
The daily USD/ZAR chart shows the long-term channel support (black) holding ahead of the NFP release. The longer term outlook is for a return to dollar strength as the Fed starts hiking rates but a miss on NFP could retest channel support as well as the 15.0639 swing low.
Contact and follow Warren on Twitter: @WVenketas