USDZAR 1Q2025 outlook

The rand has been on the ropes since mid-December after it failed to pull the pair below the 50-day MA support. Since then the broad-based dollar strength has seen the rand give away all its post-election gains.

Fundamentally there I only see two factors which are supportive for the rand as we head into 2025. The first is a strong SA trade surplus of R34.7 billion for November 2024 and the second is the SARB’s continued hawkish stance. The dollar has punished both developed and developing market currencies whose central banks opted to front run the Fed with their respective rate cuts last year and the SARB’s hawkish stance has limited the rand’s losses in 2024. Apart from these two factors, the overall risk-off sentiment stemming from the volatility in the US and other bond markets coupled with the fleeting post-election SA election optimism does not bode well for the rand.

Technically, we have completed a five wave impulse for the pair which pushed the pair to a high of just shy of the psychological handle of 19.00. I believe we should see an ABC corrective pattern play out and a re-test of the levels around 18.40 and 18.50. A failed break below this support range will be the first sign for the predicted move higher towards the 2024 high of 19.35. A break below the 50-day MA will however invalidate the idea and allow the rand to re-test levels below the 18.00 handle.

The 50- and 200-day MAs are currently sitting at 18.15 and we are seeing the infamous “golden cross” taking shape which is rand negative. Over the very short-term, the bearish divergence on the RSI could allow the rand to strengthen with today’s US non-farm payroll volatility. The USDZAR and the DXY both look overstretched and this week’s attempted move higher for the USDZAR does have the characteristics of a bull trap.