The forex market will be eventful this week as central banks in the US, Japan, and many other countries publish their interest rate decisions. The most notable one will be the Federal Reserve, which is expected to start cutting interest rates on Wednesday. This article looks at the South African rand (ZAR) and the Turkish lira (TRY).
South African rand analysis
The South African rand has been one of the best-performing currencies in the emerging markets. It has jumped by almost 9% from its lowest point this year and is hovering near its lowest level since July 2023.
The USD/ZAR exchange rate has pulled back because of the recent South African election where the ANC lost for the first time since the end of the apartheid.
The election loss has led the party to enter a deal with the business-friendly Democratic Alliance (DA).
As a result, business confidence has bounced back in the past few months while consumers are doing relatively well. South African stocks have also jumped, helped by locals and international investors.
Most importantly, there are signs that South Africa has started to handle the power crisis that has existed in the past few years. While load-shedding is still continuing, the frequency has improved in the past few months. South Africa’s credit rating has also been upgraded by agencies like Moody’s and S&P Global.
Therefore, the Reserve Bank of South Africa (SARB) will be in the spotlight as it delivers its interest rate decision this week.
Analysts believe that the bank will start cutting interest rates for the first time since 2020. Besides, there are signs that the country’s inflation is falling. Analysts expect the headline Consumer Price Index dropped to 4.5% in August, at the midpoint of its target.
USD/ZAR technical analysis
The daily chart shows that the USD to ZAR exchange rate has been in a downward trend. This sell-off could continue as the Federal Reserve cuts push more investors to emerging market countries like South Africa.
The USD/ZAR pair has dropped to a low of 17.7, a few points below the key support level at 17.86, its lowest point in June. It has remained below the 50-day and 200-day Exponential Moving Averages (EMA).
The pair has also formed a bearish pennant chart pattern, a popular bearish sign. Therefore, it will likely continue falling as sellers target the next key support at 17.4, its lowest point in July 2023.
Turkish lira analysis
The Turkish lira will also be in the spotlight this week as the Central Bank of the Republic of Turkey (CBRT) delivers its interest rate decision.
Like a few other banks, it is not expected to deliver a rate cut or hike in this meeting. Instead, it will leave rates unchanged at 50% for the sixth consecutive meeting.
The CBRT is the central bank that is under intense pressure because of the currency’s depreciation and the elevated inflation.
The Turkish lira has crashed by over 15% this year and by 26% in the last 12 months. It has also dropped by 500% in the last five years.
Nonetheless, there are some good news from Turkey. Recent data showed that the headline CPI dropped from over 72% to 52% and the CBRT hopes that it will end the year at about 40%.
The country has also received some credit upgrades. Earlier this month, the country was upgraded by Fitch to BB- because of its improved fiscal policy. Moody’s also upgraded the country for the first time in over a decade. S&P Global, the other giant ratings agency, has also upgraded the country.
These agencies cited the central bank’s orthodox policy, planned budget cuts, and wage adjustments.
The outlook of the USD/TRY pair is nonetheless muted because President Erdogan can change it instantly. Unlike other countries, the Turkish president has the mandate to hire and fire central bank officials at will.
USD/TRY technical analysis
USD/TRY chart by TradingView
The weekly chart shows that the USD to TRY exchange rate has been in a strong bullish trend for a long time. It peaked at 34.46, up from last year’s low of 18.
The pair has constantly remained above all moving averages, meaning that bulls are in control. Therefore, the pair will likely remain in this range when the Fed and the CBRT makes their decisions. A Turkish lira rebound cannot be ruled out in the coming months as foreign investors move to the country.
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