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US Dollar to South African Rand Forecast: Trade War Jitters Could Continue to Drive USD/ZAR

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US Dollar to South African Rand Exchange Rate Recovers Monday Losses as Trade Fears Return

Thanks to mixed risk-sentiment and a brief pause in the US Dollar (USD) rally, the US Dollar to South African Rand (USD/ZAR) exchange rate has seen mixed movement this week – though it has fallen from its opening levels.

The pause in US Dollar demand did cause USD/ZAR to fall considerably from the week’s opening levels; after opening the week at the level of 12.78, USD/ZAR slumped and on Tuesday hit a low of 12.50.

Still, USD/ZAR only lost about half of last week’s gains and is not significantly far from Monday morning’s 2018 high of 12.87. On Wednesday morning the pair was recovering.

A lack of particularly influential US data this week so far has given markets room to sell the currency from its best levels in a bout of profit taking.

The South African Rand (ZAR) was able to benefit from this brief tumble in US Dollar trade, as higher risk-sentiment bolstered demand for emerging market currencies like the Rand.

However, this movement was short-lived as market anxieties about the possibility of a trade war worsened again on Wednesday and made the risky Rand unappealing again.

US Dollar (USD) Exchange Rate Sold from Highs Following Weeks of Gains

At the beginning of this week, the US Dollar was sold against most major currencies, including the South African Rand, as investors took a pause from the US currency’s bull run.

The selloff was not caused by any perceived bad news in the US economy. In fact, the US economic outlook has been improving consistently and Federal Reserve interest rate hike bets have been rising.

Investors had largely been selling the US Dollar in a bout of profit taking.

And while the US Dollar has remained resilient, aside from its brief profit-taking selloff, US trade news has had a significant impact on South African Rand trade.

South African Rand (ZAR) Exchange Rates at Mercy of US Trade Developments

Rather than domestic news, the South African Rand (ZAR) has been driven by the strength of the US Dollar (USD), and global trade developments.

The Rand’s early-week surge was supported by market reaction to news that the latest round of trade negotiations between the US and China had been productive, with both sides appearing optimistic that things could improve.

This made investors a lot less hesitant to take risks and some commodity currencies like the South African Rand strengthened.

However, on Tuesday night fresh comments from US President Donald Trump suggested that he wasn’t entirely happy with how negotiations were going after all.

As a result of this sudden criticism of US-China trade talks, trade war fears were rekindled and risky currencies were sold again.

While South Africa’s April inflation results fell short of expectations year-on-year, coming in at 4.5% rather than the predicted 4.7%, USD/ZAR gains were largely due to trade war fears.

US Dollar to South African Rand (USD/ZAR) Forecast: US Data and Trade Negotiations in Focus

The US Dollar (USD) may continue to appreciate in US Dollar to South African Rand (USD/ZAR) exchange rate for the remainder of the week, as markets are now sure to await more trade developments.

It largely depends on how the US and Chinese governments react to Trump’s lack of satisfaction on US-China trade talks. If China hits back with its own negative review of talks, trade war fears will worsen again.

On the other hand, if the US and China continue to show eagerness to work out a strong deal that works for both nations, trade war jitters will lighten and riskier currencies may become more appealing again.

The US Dollar itself will be driven by trade developments, as well as data due in the coming days. Home sales stats will be published today and tomorrow, with Federal Reserve meeting minutes also due this evening.

The South African Rand will strengthen again if trade developments take another optimistic turn, but if jitters worsen USD/ZAR will advance instead.

Thursday’s South African Reserve Bank (SARB) policy decision also has the potential to influence the US Dollar to South African Rand (USD/ZAR) exchange rate.