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Can the South African Rand Hold its Position Against the Greenback?

by Staff writer
22 Dec 2020 at 17:22hrs | Views
The South African rand remains one of the poster boys for emerging currencies across the globe, and like many of its contemporaries it has experienced a highly turbulent 2020.

For example, the rand was one of numerous emerging currencies to crash as the coronavirus pandemic took hold in March, as demand for the safe haven US Dollar soared and investors flocked to more risk-averse assets.

However, the rand has rebounded significantly during the last six months, before beginning to falter once again as 2020 draws to a close. But can it hold its position against the dollar in the near-term?

2020 and the Rand - What we Know So Far

After plummeting to a low of 0.052 against the dollar at the beginning of April, the rand embarked on an incremental but noticeable upward trend, growing substantially during the third quarter.

In fact, the South African Reserve Bank leading indicator saw a healthy 3.7% hike in July, before rising by a further 1.7% by the end of August.

This trend has continued well into quarter four of 2020, with the rand peaking at 0.069 against the greenback as of December 20th. This is scarcely below the annual peak of $0.071 recorded on December 26th last year, while analysts have suggested that this barrier could be superseded during Q1 of next year.

During this time, the rand also performed comparatively well amongst similar emerging currencies, particularly the Mexican peso and the Brazilian real.

Of course, it has lost a little ground to ASEAN currencies such as the Thai baht in recent weeks, as their respective countries have begun to recover from the coronavirus and benefitted from robust growth projections for the next 12 months.

What's Next for the Rand Against the Dollar?

While the rand may have embarked on a largely upward trend for much of 2020, however, it remains precariously placed as we enter a New Year (especially when measured against the USD).

The reason for this is simple; with coronavirus infection rates continuing to rise in South Africa and the economy continuing to contract in line with ongoing lockdown measures and the impact of social distancing policies in sectors such as retail.

So, despite recently opening its border with Zimbabwe and providing a significant boost to SMEs in the region, there's a huge risk that the recent, fragile recovery will be significantly undermined by a further spike in cases.

This is contributing to a pending downward revision to the short-term resistance zone for the rand and the USD, creating potential breakdown pressures and potentially causing sustained depreciation in South Africa's currency.

This trend is something for traders to watch in the near-term, with both the South African economy and rand remaining poised on a knife-edge. Another interesting perspective will be focused on the performance of the USD, as while the Dollar Index managed to break the resistance level at 90.15 recently, this momentum will be challenged by the recent approval of a $900 stimulus package stateside.

Source - Byo24News
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