South African Rand Hits Record Low

Moodys cut the country’s rating to junk and kept the outlook negative.


The South African Rand fell to 18.05 vs US Dollar as Moodys cut the country’s rating to junk, one level below investment grade, and kept the outlook negative.  This is the first time the USD/ZAR as ever been above 18.00.  Moodys joined S&P and Fitch with ratings below investment grade for South Africa.  The ratings firm discussed a “continuing deterioration in fiscal strength and structurally very weak growth”.  The downgrade came after South Africa began a three-week country lockdown to try and stop the spread of the coronavirus. 

USD/ZAR was in a cup-and-handle formation on a daily timeframe since September 2018, breaking out of the handle in early February.  The target for a cup-and-handle formation is the depth of the cup, added to the breakout level from the handle, near 17.15.  The emerging market pair reached its target in mid-March, as well as, the 161.8% extension level from the highs on September 15th, 2018 to the lows of February 1, 2019 at 17.25.  With the break above 18.00 today, the pair broke its previous all-time highs last week near 17.88.

Source:  Tradingview, City Index

On a 240-minute time frame, although it looks like the sky is the limit for USD/ZAR, the pair is currently putting in a 3-drive pattern, in which the price makes 3 higher highs and the RSI makes 3 lower highs.  This is an indication of a possible reversal in price.  In addition, the pair has formed a rising wedge formation, however it still is in the middle of the wedge and doesn’t seem to be breaking down anytime soon.  Bulls will be looking to buy dips between horizontal support at 17.60, down to the rising trendline of the wedge near 17.45.  Below that, support crosses near the 161.8% retracement level (now acting as support) near 17.25.  Resistance is near the top trendline of the rising wedge at 18.30. As this is all-time new highs, it is difficult to find the next resistance however the Fibonacci extension of 261.8% is 19.82.

Source:  Tradingview, City Index

As the coronavirus continues to spread throughout the world, many emerging market countries will also need to “lockdown”.  Many of these countries were already in economic trouble, and the coronavirus couldn’t have come at a worse time.  As funds flow into the US Dollar and out of less stable economies, such as South Africa, watch for a continued move lower in emerging market currencies vs the US Dollar (ie USD/ZAR higher)

Build your confidence risk free

More from Forex

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.