The USD/ZAR pair wavered below an important resistance level as investors reacted to the latest news on South Africa’s AGOA eligibility. It was trading at 16.61 on Tuesday, a few points below the important resistance level of 16.7. It remains about 4.51% above its lowest point in August.
Trump to cut off South Africa from AGOA
The USD/ZAR pair reacted mildly to the decision by the Trump administration to cut South Africa – and Rwanda – from the quarter-century-old trade pact at the end of the year.
In a letter to President Cyril Ramaphosa, Trump blamed South Africa of corruption and having unfair trade practices against the United States. Notably, the president blamed “certain actions by South Africa on matters of international security and its relations and cooperation with governments of concern to the US.”
The latter point is important as experts believe that it contributed to the decision. South Africa filed a case against Israel with the International Court of Justice (ICJ). It accused Israel of conducting genocide in Gaza, allegations that Israel has denied.
It is also worth noting that the Trump administration has imposed sanctions against the International Criminal Court (ICC) for filing a lawsuit against Israel’s Benjamin Netanyahu.
Trump has also accused South Africa of having laws that target white people in the country. As a result, the administration has offered these people refugee status in the US. Over 17,000 South Africans are expected to take advantage of the refugee program.
Federal Reserve and SARB actions
The USD/ZAR pair has reacted to actions of the Federal Reserve and the South African Reserve Bank (SARB). In its decision last week, the bank decided to leave interest rates unchanged between 3.75% and 4%. Officials also hinted that they may hike rates in the December meeting.
The next macro data will help to determine the next Fed actions. For example, the US will publish the latest nonfarm payroll (NFP) data on Friday. These numbers, together with the upcoming inflation data, will help to determine whether the bank will hike or maintain rates unchanged.
The South African Reserve Bank (SARB), on the other hand, hiked interest rates by 0.25% in the last meeting. It brought them to 7.25%, with officials hinting that they will not hike again this year.
The US and South African rates differential has created a good carry trade opportunity, where investors borrow the cheap US dollar and invest in the rand.
USD/ZAR technical analysis
USDZAR chart | Source: TradingView
The daily chart shows that the USD/ZAR pair has remained inside a narrow range in the past few days. It was trading at 16.61, a few points below the key resistance level of 16.74, its October high of 16.74.
The pair has remained above the 50-day moving average and the Supertrend indicator. A closer look shows that it is slowly forming a double-top pattern at 16.74 and a neckline of 16.33.
Therefore, the pair may resume the downtrend in the near term. However, the most likely scenario is where it breaks out above the key resistance level of 16.7. A move above that level will point to more gains towards the extreme overshoot level of 17.
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