USD/ZAR Forecast: Rand Depreciates by 6% Following Declaration of State of Emergency

National Disaster Declared Following Deadly Kzn Floods 

On April 11th and 12th, the province of KwaZulu-Natal (KZN) received between 200 and 400 millimeters of rain in 24 hours, resulting in the displacement of tens of thousands, billions of rands in damage to infrastructure, residences, and businesses, and a death toll over 500.

Due to the gravity of the crisis, the government declared a national state of disaster in order to assist individuals and assist with infrastructure reconstruction. Despite the flooding's limited nature, the floods will have a national impact, as SA's major port in the coastal city of Durban has been negatively affected, resulting in shipping delays.

The Electricity Utility Fights To Keep The Lights On

Eskom, South Africa's sole energy provider, announced on April 8 that load shedding will begin immediately owing to outages at the Kendal, Duvha, Camden, and Kusile power facilities. While several units were restored immediately, it takes time for them to reach full capacity, necessitating the usage of emergency producing reserves.

World Economic Outlook 2022, International Monetary Fund

The IMF revised down global growth earlier this week, citing the Ukraine crisis, persistent inflation, and global tightening monetary policy. Significant economies saw downward adjustments, with the US falling from 4% to 3.7 percent and China falling from 4.8 percent to 4.4 percent. Reduced growth in the US and China implies decreased future demand for goods from exporting nations such as SA, which could result in more economic headwinds. Surprisingly, the IMF maintained SA's growth predictions for 2022 and 2023 at 1.9 percent and 1.4 percent, respectively.

USD/ZAR Technical Support and Resistance Levels

The rand has lost over 7% of its value against the strong dollar during the last four trading days. Prior to the current surge in the USD/ZAR exchange rate, the rand was one of the better performing currencies against the dollar. The dollar is fundamentally sound, having benefited from a safe-haven appeal during the early phases of the Ukraine war but now benefiting from aggressive rate hike predictions for the remainder of 2022.

The unraveling of the risk-aligned commodity trade, which is linked to global rate hike cycles, adds to the ZAR's troubles by reducing aggregate demand (money becomes more costly to borrow) and frequently results in a slowdown in GDP.

The USD/ZAR pair tested the 15.70 mark and has now retreated significantly from that level, which corresponds to the Jan 28 high. USD/ZAR tends to trade near significant psychological levels (purple lines), making 15.50 the closest level to consider. A closure below 15.50 indicates a regression towards trendline support (established from the Jan 28 high), with secondary support at 15.00.

However, the rand is vulnerable to further selling due to the abrupt change in ZAR fundamentals. 15.70 is the next resistance level, whereas 16.00 is the secondary level.

USD/ZAR Daily Chart