- The South African currency declined yesterday before gaining a day earlier
- President Jacob Zuma survived a no-confidence vote
- USDZAR approaches a relevant resistance
The past two days on the USDZAR were really stormy with a U-turn taking place yesterday. Let’s start with what it happened on Monday which buoyed the South African currency substantially. The ZAR strengthened following a decision of a no-confidence vote against the incumbent President Jacob Zuma who is not liked by investors as well as financial institution. It’s worth mentioning that under Zuma, who has led the country since May 2009, South Africa has slipped into recession and has seen unemployment rise to a 14-year high.
All gains were wiped off yesterday as Jacob Zuma managed to survive a no-confidence vote that could have brought an end to his administration. As a result, the South African rand is declining for a second day in a row against the US dollar. The currency is the second-worst performer among major peers after Tuesday’s motion – held by a secret ballot – was defeated by 198 votes to 177. Even as the vote can be hardly expected as a shocking for market participants, it proved to be sufficient to lift the rand’s one-month implied volatility above 15%.
Moreover, even as a one-month implied volatility has subsided recently, it’s stayed above 15% meaning relatively an elevated range of future swings. Besides, it’s worth noticing that a one-month risk reversal indicator slumped in a run-up to a no-confidence vote suggesting that more investors could have counted on a toppling of Zuma from his post. However, the final outcome turned out to be different, hence it could be quite significant space for fresh longs relative to shorts going forward.
By and large, even though Jacob Zuma survived it was not a good sign for him taking into account that as much as 51 members from his party did not cast a vote or voted against him. Let’s pin down that his party has 249 seats while there were 198 votes for ’NO’.
Technically, the pair could have massive room to keep on rising once a resistance placed in the vicinity of 13.68 is broken after all. Though, it could turn out a hard nut to crack for bulls as it’s underpinned by a 23.6% retracement of a downward move measured from a peak marked at the beginning of the last year. Nonetheless, assuming a short-term comeback of strength of the US dollar that kind of a breakout cannot be excluded. If so, bulls could eye another target at 14.6.