South African rand outlook after the De Ruyter interview

The USD/ZAR exchange rate continued its bullish comeback as the outlook of the South African economy worsened. It jumped to a high of 18.50, the highest point since November 3. The South African rand is hovering near its lowest level on record.

De Ruyter on Eskom corruption

The biggest news in South Africa in February was an exclusive interview with Andre Marinus de Ruyter, the former CEO of Eskom. In the candid conversation, he discussed his tenure, what he had achieved, and the biggest challenge facing the company.

De Ruyter also confirmed what many people had speculated in the past when he talked about corruption. He said that ANC, the ruling party in South Africa, had a role in the collapse of the power monopoly.

The most important part was where he cautioned that it will be extremely difficult to turn the company around. As such, South Africa could see load shedding for many years to come. Since power is an important part of the economy, we could therefore see the country continue decelerating in the future.

The most important aspect is that South Africa’s manufacturing sector is shrinking at a rapid phase. Without an efficient power source, manufacturers are now forced to produce their own power, which makes them more uncompetitive.

The mining sector, which also consumes a lot of power, has also been shrinking. In the past decades, the sector has lost thousands of jobs as mining output slowed down. As such, with no major catalyst for the economy, we could see the USD/ZAR continue rising in the coming years.

The South African rand will struggle as the Federal Reserve maintains high-interest rates. Recent data points to another 0.75% rate hike in the next few months.

USD/ZAR forecast

USD/ZAR chart by TradingView

On the daily chart, we see that the USD to ZAR exchange rate has been in a strong bullish trend in the past few weeks. A closer look shows that it has formed a cup and handle pattern, which is usually a bullish sign. It remains above the 50-day and 100-day moving averages while the MACD has continued rising.

Therefore, the pair will likely continue soaring as the South Africa’s economic outlook darkens. If this happens, the USD/ZAR pair could jump to ~20 in the coming days. A drop below the support at 18.20 will invalidate the bullish view.