USDZAR Hovers Below Resistance with S. Africa’s Credit Rating in Jeopody

by on July 3, 2014 5:32 pm GMT

South Africa’s economic troubles continue as nearly 220,000 miners and metal workers pose a strike, which could affect the weak economy’s manufacturing output by a third. The strike within platinum miners over wages, during the last five months, already caused a growth contraction during the first quarter.

The negative growth outlook is raising concerns at Moody’s, which could lower the nation’s Baa1 rating. In a statement released by the credit agency, “continued weak investment, exports and overall growth will pose serious challenges to the government’s efforts to rein in its budget deficit and stabilize its debt metrics, a credit negative for the economically troubled country.” Due to the multiple labor strikes, it is likely S. Africa will miss the targeted 2.7 percent growth expected in 2014.

The negative credit outlook for S. African debt will likely weigh the rand down, and this could be bullish for USDZAR. Price action has been consolidation around 10.80, and a close above will allow the pair to challenge the descending resistance trend line 10.90. A breakout would target 11.00, while a rejection at resistance would be a continuation of consolidation. If price action is held underneath 10.80, support at 10.69 and 10.59 could be points of demand. A breakdown of price action through the ascending trend line would cause a sell-off to 10.47.

1D Chart of USDZAR

1D Chart of USDZAR