Unless we see massive stimulus again, which given enough time we probably will, currencies like the ZAR will continue to suffer.
- The US dollar rallied again during the Friday session as it looks like the 16.88 level is now in the rearview mirror.
- The market looks very likely to continue going higher, but it’s also worth noting that we are a bit overbought at this point.
- A short-term pullback does make sense, but based on the trend that we have seen so far, it’s likely that we will see more of a “buy on the dip” type of attitude out there.
This makes quite a bit of sense, due to the fact that risk appetite has been decimated out there, so people will be much more interested in owning US dollars than emerging market currencies. That being said, it was a mixed bag when it comes to EM currencies, but clearly, the South African rand is on its back foot. That being said, a pullback at this point more likely than not will face a significant amount of support at the 16.50 level, an area that is a round figure that a lot of people pay close attention to.
Is it Time to Short the Rand?
Looking at this move, you can see that we had broken above a significant resistance barrier in that area, and now it looks like we are ready to go much higher given enough time. That being said, I don’t like the idea of shorting this market, even if you told me that it was going to start falling tomorrow. It’s not until we break down below the 15.75 level that I would consider shorting this market, and even then I would have to see what was going on in the bond market in the United States, which of course is a major driver as to where the US dollar is going.
South Africa continues to be a place that people won’t want to throw money at right now, as commodities are taking a nosedive. Remember, the South African economy is highly sensitive to hard assets as it is a major commodity producer. If there is in fact going to be a global slowdown, it makes quite a bit of sense that commodity currencies, commodities, and commodity-related economies all suffer. I think that continues to be the case going forward as we head into recession, and unless we see massive stimulus again, which given enough time we probably will, currencies like the ZAR will continue to suffer.