USD/ZAR keeps the upside gap towards 15.50 as Fitch downgrades South Africa

Having marked a 10-pips gap-up, from 15.32 to 15.42, at the week’s start, USD/ZAR seesaws in a choppy range, currently around 15.43, during Monday’s Asian session. In doing so, the pair respects the rating downgrade from the global rating giant Fitch while parting ways from the previous two days’ declines.

In its latest update, Fitch said, “Fitch Ratings has downgraded South Africa's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'BB-' from 'BB'. The Outlook is Negative.” The rating giant cited high and rising government debt, exacerbated by the economic shock triggered by the coronavirus (COVID-19) pandemic, as the key catalysts for the latest announcement on ratings.

Even so, the USD/ZAR bulls remain capped as the US dollar fails to extend Friday’s gains amid mixed sentiment concerning the risks.

Although hopes of the covid vaccine/treatment favor the bulls, a sustained rise in the cases joins the uncertainty surrounding the US Federal Reserve’s emergency stimulus plans, due to Treasury Secretary Steve Mnuchin’s recall of $500 billion, question risks. However, S&P 500 Futures print 0.20% intraday gains while the US 10-year Treasury yields remain sluggish around 0.82% by press time.

Moving on, Wednesday’s October month’s inflation data for South Africa becomes the key indicator to watch for USD/ZAR traders while the November month’s US PMIs and risk catalysts can also direct the pair moves.

Technical analysis

Any moves inside the trading range between 15.45 and 15.21, comprising 10-day SMA and the monthly low, become less meaningful.