Rand price performance has been supported by commodity prices
In this article we look at how currencies have been affected by volatile commodity prices and provide a brief outlook for the rand.
A stronger US Dollar Index
The US Dollar Index (DXY) has been gaining since June 2021 as the world’s largest economy looks to tighten monetary policy sooner (for the most part) and quicker than its Japanese, British and European central bank peers.
But while the DXY has benefitted from a more hawkish Federal Reserve and some safe haven demand in the midst of the Russia Ukraine war, it represents only a basket of the US dollar’s crossings against the the JPY (JPY), Canadian Dollar (CAD), Euro (EUR), British Pound (GBP), Swedish Kron and Swiss Franc (CHF) currencies.
Commodity export driven economies have seen currency outperformance
Since the Russian invasion of Ukraine on the 24th of February 2022, we have however seen a number of commodity exporting countries see their respective currencies gaining against the greenback.
These currencies include the Australian Dollar (AUD), the Brazilian Real (BRL), Canadian dollar (CAD), Mexican Peso (MXN), and the South African Rand (ZAR). The CAD, while included in the DXY basket, carries less influence than the combination of its peers in the index.
Relative currency performance against the USD
The below graph highlights the AUD, BRL, CAD, MXN and ZAR’s relative performance against the US dollar (USD) since the onset of the war (24 February 2022).
Russia, a major commodity producer itself has seen a sharp weakening of its domestic currency (Ruble) following sanctions from The West in retaliation for its invasion into the Ukraine.
These actions have seen a sharp rally in a number of underlying commodities which include gold, platinum group metals, Oil and energies, base metals (most notable aluminum and nickel) as well as wheat.
We can see that the rand has (since the war began) outperformed the CAD and MXN, while underperformed the AUD and BRL.
Among South Africa’s key export commodities are gold, platinum group metals, coal and diamonds.
USD/ZAR – Technical view
The USD/ZAR has now moved well below the 200-day simple moving average (200MA). The move lower shows the long-term uptrend for the currency pair to be broken.
The recent acceleration lower has moved the pair into oversold territory. This suggests that we could see a short term rebound in the USD/ZAR with 14.80 and 15.20 as possible resistance targets.
However, with the medium to longer term trend bias shifting from up to down, traders might look for a bearish reversal before the 15.20 level for short entry, with 14.40 and 14.05 possible longer term downside targets.
Only on a move back above the 200MA at 15.20 would we reconsider our trend bias to trades on the currency pair.
This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Live prices on most popular markets
- Forex
- Shares
- Indices
Prices above are subject to our website terms and agreements. Prices are indicative only
