The Republic of South Africa is the 3rd biggest and overall the most industrialized economy in Africa. It is a developing country and has great potential with a population of 60 million. Imagine what can these people achieve if they start to transition from a developing country to a developed country. Did you know that South Africa is also a member of the G20? All these aspects make South Africa a very interesting and exciting country to explore. We are going to focus on South Africa’s economy and hopefully predict its trends for 2023 in this article.
Technical analysis of ZAR
The Fiat currency of South Africa is called South African Rand, or ZAR. Technical analysis uses statistical and other mathematical tools to analyze price data and show important tendencies. When trading, it is important to conduct a comprehensive technical analysis of an asset before opening any trade. Because the South African economy is somewhat dependent on oil and food from Russia and Ukraine and the US Fed is fighting inflation, it will be hard for ZAR to show strength against the dollar. This is confirmed by the false shooting star pattern that couldn’t stop the upward trend of the USDZAR currency pair.
This shows how difficult it is for ZAR to battle the USD. Generally, a shooting star occurs when buyers can’t push the price up and is followed by a downward movement. This wasn’t the case in this situation, as the seller failed to stop buyers from further increasing the amount of ZAR required to buy 1 dollar.
The same tendencies are apparent on the EURZAR chart, which shows how weak ZAR is against the EURO. Since 2011 EURZAR has been in an uptrend, showing the weakness of the South African currency against the well-established Euro. More and more ZAR is required for South Africans to buy Euro. The shared crisis of energy prices seems to balance out any possibilities for ZAR gaining an upper hand vs Euro.
Very interesting is ZARJPY chart that shows the price is uncertain. 7.95 is the obviously important resistance zone, and we shall see some nice battles between bulls and bears in this territory. So, make sure you have some snacks and watch how it plays out for ZARJPY.
Fundamentals of ZAR
It is important to know which factors affect ZAR the most. After fundamental analysis, we will see a clearer picture of what ZAR can do in 2023. According to the IMF, South Africa’s GDP is expected to grow only by 1.1% in 2023, a minimal number. But because of global political instability and Russian aggression against Ukraine, these economic conditions are understandable in the world. Another important indicator of the currency’s strength is inflation, it was 7.7% in 2022. This is not that bad when compared to the USA’s inflation rate, where the Fed is still increasing interest rates to maintain inflation under 7.4%. But the inflation rate for specific sectors was different for South Africa, for energy (+17.7%) and for food (+12.4%). As we can see, the real inflation the population feels was greater than the average year-to-year number. These numbers are not a coincidence as South Africa gets oil and food from Russia, and since Russia was not smart enough not to start aggression against Ukraine these numbers are logical. Since the war is going on and doesn’t seem to stop, it is more likely that this trend of energy and food prices inflation will continue weakening the ZAR against other countries currencies. Especially versus USD because the Fed is about to decrease inflation under 7%. This is going to make it hard for ZAR in 2023 to stand solid ground. For other currencies, we are comparing developing countries’ economies to developed countries of EUR and JPY. Despite the energy crisis in Europe, the winter seems to be warm, and the continent is standing its ground solidly as of now. Japan is a developed and powerful country, people of Japan love working and no matter what happens they are going to increase their GDP by more than 1.1%.
Because of the fundamentals mentioned above, it will be hard for the South African ZAR to strengthen against major currencies like JPY, EUR, and GBP. Especially hard it will be when compared to USD, because of how similar inflation numbers are and how the Fed is not going to stop until inflation falls to controllable levels. Add to this how technical indicators and chart patterns were unable to stop the USDZAR price from rising, and we have a picture of a bullish trend for USDZAR. This means there will be more ZAR needed to buy 1 USD in 2023. A similar tendency is apparent on EURZAR charts, where the uptrend is from 2011. Current charts also show the uptrend has the potential to continue in this direction in 2023. JPYZAR situation is a bit different from the other two, and we may see very interesting movements at the 7.95 resistance zone.