South African Rand weakens as credit ratings drop


The South African Rand extended its losing streak for the second week after a major shuffle in its finance sector. On Wednesday, the Rand (ZAR) added further losses as it traded at 13.852 high in the London session against the greenback. This follows a 1,050 pip rally last week after the finance minister was sacked. Will the dip on the ZAR continue? We will analyze the South African Rand weakens as credit ratings drop to see possible mid-term and long-term targets.

5 April, AtoZForex The Standard & Poor recently downgraded South Africa to junk. The downgrade was the aftermath of last week's sacking of the Finance Minister by President Zuma. While this may already have been priced in by the markets, the ZAR suffered another tumble.

It has been speculated that the downgrade could cost South Africa up to $10 Billion. Fitch noted last Friday that the cabinet shake-up heightened political risk.

Multibank
4.9/5
Multibank Review
Visit Site
eToro
4.9/5
eToro Review
Visit Site
Capital.com
4.8/5
Capital.com Review
Visit Site

In the light of these events, the Rand is expected to remain under pressure for much of 2017. Yesterday, the Rand strengthened against the USD as rumors surfaced that allies of President Jacob Zuma had abandoned him. The South Africa President has been under pressure to step down following the cabinet reshuffle last week. The junk status rating places more pressure on  a troubled economy.

South African Rand weakens as credit ratings drop: A look at the charts

The daily chart shows price at a descending trend line resistance. This current level is key as it may be the line in the sand between a drop and a long-term rally.

South African Rand weakens as credit ratings drop South African Rand weakens as credit ratings drop Daily Chart (click to zoom)

If price penetrates the resistance, the bullish rally will most likely continue long term. It is therefore important to wait for a breakout of the $14 resistance before placing a buy order.

South African Rand weakens as credit ratings drop South African Rand weakens as credit ratings drop Weekly Chart (click to zoom)

The weekly chart shows a 12-month bullish flag at the point of a possible breakout. Longer term investors may take the $17 region as a possible target after a breakout. Overall, price has remained in an uptrend for half a decade and after the breakout, a further rally is expected.

Think we missed something? Let us know in the comments section below.

Leave a Reply

Your email address will not be published. Required fields are marked *