The US dollar has been all over the place against the South African rand.
The US dollar continues to see a lot of interest in it due to the fact that there's so much noise and destruction coming out of the Middle East when it comes to risk appetite.
After all, as long as there is a war going on and nobody really knows what to do about it, interest rates will continue to try to price in the idea of an energy shock.
And that of course means that people are going to see a lot of concern about the cost of energy driving inflation through the roof and therefore central banks such as the central bank in South Africa as well as the Federal Reserve will have to keep rates somewhat elevated. That being said, the South African rand is pretty far out there on the risk curve, so I think the scenario right now does make sense that we would have some US dollar strength because the interest rate differential isn't what it once was and of course it's safer to own US Treasuries, for example.
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Geopolitical Risk and Interest Rate Differentials
But ultimately, I also recognize that there is such a massive interest rate differential between the US dollar and a lot of other currencies that eventually the US dollar will feel that weight. Now when I say other currencies, I'm generally speaking of exotic ones such as the South African rand.
I suspect the USD/ZAR pair goes look to the 16.5 level and if we can break down below there, 16.3 might be our next target. Any rally at this point in time has me very interested in shorting this pair near the 200-day EMA at 16.85.
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