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Spiral Downward of South African Rand as Confidence Weakens

The USD/ZAR has hit a bad milestone today as the bullish trend of the currency pair has toppled the 19.00000 mark momentarily, this as the USD has shown weakness against many other major currencies in the past week because financial institutions are positioning for a more dovish tone from the U.S Federal Reserve as they wager the U.S central bank may pause its interest rate hikes. In other words, the South Africa Rand is trading in the wrong direction.


The USD/ZAR is now languishing near the 19.00000 ratio as behavioral sentiment continues to show signs of nervous exhaustion regarding the perceived political ineptness of the South African government. Nearly one month ago on the 14th of April, the USD/ZAR was slightly below 18.00000.

USD/ZAR One Month Chart as of 11th May 2023


South African Government is Perceived as Corrupt and Ineffective and this Hurts the USD/ZAR


The non-correlation of the USD/ZAR to the broader Forex market is not happening because financial institutions believe in the overall long-term strength of the USD, it is happening because dark shadows loom over the South African Rand. The darkness hovering over the Rand is occurring because of mismanagement within the South African political system, and it’s inability to deliver a reliable electricity supply to citizens and businesses domestically due to a combination of corruption and criminal activity.


The people of South Africa have plenty to be proud of because their country is one of the most beautiful in the world geographically, and it has abundant natural resources. The nation has been a pioneer regarding science and commercial enterprise in the past. However, political opportunism and neglect have led to a quagmire that has muddled the nation's infrastructure into a nightmarish state. Loadshedding – which is the South Africa government’s term for rolling blackouts, continues to get worse and winter is approaching. Outages of electricity have steadily hit Stage 6 lately with worse loadshedding feared on the horizon. There looks to be little respite coming as electrical stoppages are happening two to three times a day, and communities are going without electrical power for up to four hours during each halt of energy. These rolling blackouts also happen daily, it is not like they are only happening once a week. Businesses of all sizes are being hurt because of a lack of production. Businesses that burn diesel via generators to power their enterprises are suffering financially due to the high costs and a dramatic loss of profits.


USD/ZAR One Year Chart as of 11th May 2023


Long-Term Outlook is in Question as USD/ZAR suffers from Political Peril


The loss of value in the USD/ZAR has been going on for a long time and no technical charts are inspiring confidence. The South African Rand which used to be considered among the best currencies within developing nations is now compared unfavorably. Mismanagement of the economy within South Africa has led the Rand to be associated to the likes of the Turkish Lira. Financial institutions have little reason to trust the effectiveness and long-term value of the South African Rand until concrete political changes are made, which end alleged corruption and cronyism and that seemingly look blindly on criminal activity within crucial infrastructures.

USD/ZAR Five Year Chart as of 11th May 2023


The South African Rand is not the Argentine Peso in terms of misdeeds and mismanagement, but there is a growing fear that political ineffectiveness, a lack of transparency and a poor reputation are making economic conditions worse. The last and only time the USD/ZAR traded above the 19.00000 level before was at the height of coronavirus. Yes, the value of the USD/ZAR improved from that apex of late March 2020, and the currency pair touched the 13.45000 ratio in late May of 2021. However, nearly two years later the USD/ZAR has returned to a value that shows a supreme lack of confidence exists regarding the outlook for the South Africa economy, this as Gold trades above 2000.00 USD per ounce.

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