The South African rand has pulled back over the past two months as the ongoing US-Iran war has hampered the country's economic growth. The USD/ZAR pair rose to 17.06 due to the decline in the JSE All Share index and gold prices.
South African Rand and JSE All Share Index fall.
The USD/ZAR exchange rate has surged due to the continued iran warWhich increased energy prices to a great extent in the last month.
Brent, global benchmarks, and West Texas Intermediate (WTI) have all jumped above $100 this month, and that trend could continue as the war escalates.
Disruptions in the Strait of Hormuz have had some impact on South Africa's economy, with fuel prices continuing to rise, a move that will impact the country's inflation.
Also, the USD/ZAR surge coincides with the continuation of fall in gold price. Gold has fallen more than 14% to $4,560 in the last 30 days, data shows. It is close to a bear market after falling more than 18% from its high point this year.
Gold is a top export commodity in South Africa, and the economy performs well when it is in a strong bullish state. Other top South African commodities such as platinum and palladium have also declined over the past few weeks.
The continued decline in the price of gold has contributed to the weak performance of the local stock market, with the JSE All Share Index posting its worst performance since 2008.
It fell 14% in March, wiping out the gains the metals and mining sectors had made earlier this year. The share of this sector in the index is about 27%. Other top laggards were sectors like construction, materials, banks and retailers.
South African stock market declines often have a negative impact on the rand, due to large withdrawals, particularly by foreign investors.
Meanwhile, the USD/ZAR exchange rate has surged over the past few weeks, helped by a rally in the existing US Dollar Index (DXY) as investors flock to its safety. The dollar index has risen sharply from last year's low of $96 to $100.
Analysts predict the Federal Reserve will keep interest rates higher this year than expected. Polymarket data suggests the Federal Reserve will not cut rates this year, which explains why US bond yields have jumped over the past few months.
USD/ZAR Technical Analysis
USD to ZAR Chart | Source: Trading View
The daily time-frame chart shows that the USD/ZAR exchange rate has surged over the past few months, rising from a low of 15.62 in January to a high of 17.25.
The pair has moved above the 50-day and 100-day exponential moving averages (EMA), a sign that bulls are in control.
However, the pair has formed a rising wedge pattern, composed of two ascending and converging trend lines, which are now close to the confluence zone.
The Relative Strength Index (RSI) and the Percentage Price Oscillator (PPO) are losing bullish momentum. Therefore, the most likely scenario is where the pair retreats in the coming weeks. If this happens, the next main target to watch will be at 16.50.