Trimmed S Africa’s GDP growth outlook turns Rand bearish

On September 29, we had recommended taking a long position in the USD/ZAR pair at 13.50, with a target level of 13.90. Similarly, a one touch call option was recommended for the binary option traders. The target was hit in a matter of one week. The currency pair consolidated at that level and went up further to hit a high of 14.49205. However, a series of mixed US economic news brought the USD/ZAR pair down to 13.85 levels. For the reasons discussed underneath, we anticipate a bullish reversal from the current level.

In an interview to the Wall Street Journal, the San Francisco’s President John Williams stated that he anticipates one rate hike this year and expects that to come in December.

William Dudley, the dovish New York Fed President who is perceived to be a close ally of Yellen, also believes that the Fed should certainly act in December. The US rates strategy head at BMO Capital Markets, Ian Lyngen, is of the opinion that the US Fed would give a clear indication of its intention later this week. According to a survey conducted among analysts, the probability of a December rate hike has strengthened to 74%.

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In South Africa, the Finance Minister Pravin Gordhan downwardly revised the GDP growth estimates to 0.5% in 2016, from 0.9% growth outlook issued in February. The announcement was made during last week’s midterm budget policy statement. While the economists applaud some of the decisions taken by Gordhan, they believe that a lot needs to be done to revive investors’ confidence. The unsubstantiated verbal attacks by the supporters of the President Jacob Zuma along with high unemployment rate, wasteful expenditures, huge debt, and political uncertainty continue to threaten a downgrade by the rating agencies. Thus, we anticipate the USD/ZAR pair to remain bullish in the short-term.

The USD/ZAR chart is now trading near the proven support level of 13.85. The momentum indicator has also made a positive divergence with the price. Thus, we can anticipate the currency pair to begin its uptrend soon.

Under such circumstances, it would be prudent on the part of a currency trader to take a long position in the USD/ZAR pair near the support level. To limit losses from a failure of the forecast, a stop loss order can be placed below 13.70. The long position can be closed when the pair reaches the next resistance at 14.25.

A binary trader can bet on the uptrend of the USD/ZAR pair by purchasing a one touch call option. The trader can be rest assured of success as long as the strike price is below 14.25. Finally, an expiry date in the last week of November would also boost the chance of success in the call option trade advised.

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