And today, the rand is trading exactly at R15.00.
The good news is, I still expect the rand to strengthen further.
This time, it's all the way down to R13.80.
Here's why!
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What junk status? Hmm
Let's go back to Jan 2020 just to catch up.
The rand was on an absolute roller coaster last year.
It started in January in 2020 at R15.00 to the US dollar.
Then in March we not only had our first Covid-19 case, but we also had a major investment grading down to junk status.
This led to major concerns with a bunch of foreign capital being taken out of South Africa from investors.
We then entered into a national stage-5 lockdown.
From there, the rand continued to weaken past a frightening level of R19.20.
We thought it was the end.
Then in the fourth quarter, the panic subsided, the COVID-19 case numbers started to drop, and life started going back to normal as we eased down the restrictions.
That's when we saw the rand begin its strength from R19.00 down to R16.00.
It’s as if, the Junk Status grading never took place…
Investors priced in all the negative sentiment and events and got back into the rand.
This however is not because of sudden optimism, but rather continued dollar weakness.
The dollar is under major pressure, which is great
for the rand
The US is still looking to adopt a $2.3 trillion coronavirus aid and government spending package.
This equates to one thing – a lot more debt.
And while you think that's bad for its economy, US president Donald Trump is taking on even more debt for the US as he is doing everything, he can to change the legislation.
He refuses to accept defeat, as megalomaniacs do, and so this is putting strain on the country.
In fact, he is now demanding for 10,000 more votes to try and win the election, despite the fact that he has lost.
With this not being a smooth transition with the elections, this will continue to lead to dollar weakness and investors will look to other currencies to invest in.
In this case, emerging currencies like the rand will benefit.
Vaccines could be available by next month!
Last week, we kicked off the year on a positive note.
This was based on investors gaining hope on a COVID-19 vaccination programme that’s on its way.
In fact, Health Minister Zweli Mkhize said on Sunday, South Africa aims to get vaccines by next month.
This is optimistic for investors and positive for the country and the rand, as this will help the economy get back on track and for South Africa to drop down to Level 1 – with less restrictions.
And finally, we have the charts confirming more strength.
The US dollar is in "Free Fall" mode – this means more upside for the rand
As I mentioned in the beginning of the article, I'm extending my target for the rand.
And it's because right now the US dollar against the South African rand (USD/ZAR), is in what I call a 'Free Fall'.
A Free Fall is a formation where the price is falling at a high rate, until it reaches its next major support or floor level.
In this, case the support is at R13.80. In fact, if you look at the daily chart you'll see three times (3 Arrows), it failed to break through in 2019.
And as a trader and an investor, we look for these psychological levels to place our buys at and for sellers to exit.
That's the main technical reason, why I expect the rand to continue to strengthen until it reaches R13.80.
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Here are two ways you can profit from the 8% drop in the US dollar against the SA rand
First, I’d look to go short the USD/ZAR Mini CFDs and hold it until it hits the price target of R13.80.
Trade well,
Timon Rossolimos,
Analyst, Red Hot Storm Trader
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