Rand at a Crossroads as Key Levels to Determine Rally’s Future

JOHANNESBURG (Capital Markets in Africa) – Some traders are wondering whether the rand’s 20 percent rally since November has gone too far. This week may settle that question.

The South African currency has just completed a so-called “golden cross”, signalling an extension of the gains versus the dollar on the back of market-friendly swings in national politics. But it has come up against another hurdle, which it briefly cleared on Tuesday before falling back. Traders may turn bullish if the rand closes above both levels on successive days.

The world’s most volatile currency is strengthening against the dollar for a fourth day, closing in on a 30-month high, amid optimism Cyril Ramaphosa’s election as the ruling-party chief will pave the way for policies promoting growth and investment. Yet, investors remain on the edge as they await Thursday’s interest-rate decision, February’s budget speech and a sovereign rating assessment by Moody’s Investors Service by the end of March.

“Recovered confidence in the African National Congress is definitely helping,” says Bianca Botes, corporate treasury management at Peregrine Treasury Solutions. “The key, however, remains in getting this to translate into economic growth.”

Views on the rand’s outlook differ. While Standard Bank says it remains “constructive” on the currency, HSBC Holdings Plc analysts including David Faulkner and Murat Toprak say “there is little light at the end of the tunnel,” predicting a depreciation to 15.5 per dollar by the end of the year.

The rand completed the “golden cross” technical pattern, with its 50-day moving average crossing above the 200-day mean, which some traders see as a buy signal. The last time this happened, in July 2016, the currency gained 7 percent in the following three weeks. A similar cross between 50 DMA and 100 DMA took place last week.

However, another pattern based on the Fibonacci sequence has proved more difficult to clear. The currency is close to retracing 50 percent of the slump between 2011 and 2016. If it does so, the rand may climb to as high as 10.89 per dollar. But if the resistance proves too strong, it may fall back to 13.57.

On Tuesday, the currency briefly crossed the milestone only to fall back.

Source: Bloomberg Business News