USD/ZAR price forecast: Rand firms after Medium-Term Budget Statement released

The South African Rand (ZAR) has shown a positive response to the Medium-Term Budget Policy Statement (MTBPS), strengthening directly into the release thereof. This strength in the Rand has been observed despite the firmness we've seen in the US Dollar (USD) against a broad basket of currencies, ahead of the Federal Reserve's rate decision this evening. The ZAR's positive response could be interpreted as a sign of approval regarding the suggested fiscal discipline and the absence of news on further allocations to struggling State-Owned Enterprises (SOEs).

Key Takeaways from the MTBPS:

1. South Africa is experiencing financial difficulties, as indicated by the need for budget cuts due to lower-than-expected revenues. The main budget deficit has increased significantly compared to previous estimates, highlighting the country's weaker public finances.
2. The government has adopted an austerity tone in response to the financial situation, signaling that budget cuts are likely to be implemented. This suggests a shift towards greater fiscal responsibility.
3. The extension of the Social Relief of Distress (SRD) grant for another year demonstrates the government's commitment to supporting its citizens during challenging times. However, this extension comes with an additional cost of R34 billion.
4. The main budget deficit forecast for 2023 has worsened, expected to be 4.9% of GDP compared to the 4% estimated in the February budget. This indicates a growing financial burden for the government.
5. There were no announced bailouts for major state-owned enterprises (SOEs) like Transnet, Eskom, Denel, or SAA. This suggests a potential shift in the government's approach to managing SOEs, possibly towards greater fiscal responsibility.

Overall, the South African government is facing a challenging financial situation and is taking steps to manage it responsibly. The focus on budget cuts and the absence of major SOE bailouts indicate a commitment to fiscal discipline. However, the impact of these measures on the country's economy and its citizens remains uncertain.

USD/ZAR – trading view

The USD/ZAR has now below the 18.70 the support level, suggesting 18.40 as the next support target from the move.

The price is however still within a range trading environment. Traders looking for long entry might hope to see a bullish price reversal before the 18.40 level.

Traders looking for short entry might prefer to wait for the range to instead be broken to the downside with a close below the major low at 18.40.

Should any of these scenarios manifest we will update guidance with targets and failure levels accordingly.