USD/ZAR PRICE, ANALYSIS AND CHARTS:

• USD/ZAR Rises Despite BRICS Expansion Plans, Dollar Bulls Return.
• BRICS Bloc Has Extended an Invitation to 6 Countries to Join the Bloc with Saudi Arabia the Surprise.
• The BRICS Bloc Has Bold Ambitions but a Lot of Work Lies Ahead to Bring the Vision to Reality. The First Steps are Definitely Positive for the Bloc as it Looks to Challenge the Established Global Order.

The South African Rand (ZAR) has been enjoying an excellent run of late thanks to a combination of factors. That run has come in for a slight reprieve today as the USD regained some momentum with USDZAR up 1.24% on the day and back above the 18.50 mark.

BRICS SUMMIT AND EXPANSION PLANS

The BRICS Summit finally kicked into serious mode today with the BLOC confirming it has extended invitations to 6 countries while leaving the door open to further expansion. Among the countries mooted for the Blocs first expansion include Iran, Argentina, Ethiopia, Egypt, UAE and of course the big name in Saudi Arabia. What is intriguing about the announcement is the historically close ties between Saudi Arabia and Egypt with the powers that be in Washington DC, and how any decision to join BRICS may affect the relationship dynamics between the nations.

GDP (at Current Prices) of the Expanded BRICS Bloc

Source:Twitter

South African President Cyril Ramaphosa stated that the Bloc has embarked on a new chapter in an effort to build a world that is fair, just and inclusive and prosperous. South Africa remains the smallest economy in the current BRICS make-up and with powerful countries set to join it will be interesting to see if the Southern African Nation loses any clout in the Bloc, a fear first brought up by Brazil. Both countries today however seemed to be looking forward to the expansion with both Brazilian President Lula and SA counterpart Ramaphosa stating that this is the first phase of the expansion with others likely to follow.

In response to the invite Ethiopian Prime Minister Abiy Ahmed called the decision ‘a great moment’ while UAE President Mohammed bin Zayed said he appreciated the inclusion of his country. Also in attendance today was the United Nations Secretary-General Antonio Guterres who echoed a recurring plea by BRICS for reforms of institutions like the U.N. Security Council, the International Monetary Fund and World Bank, stating that global governance structures "reflect yesterday's world". Indian Prime Minister Narendra Modi said the expansion and modernization of BRICS is a message that all institutions in the world need to mold themselves according to changing times. Despite all the positivity around the announcement there was fierce debate around the size and speed of the expansion among members and it will be interesting to gauge the groups dynamics moving forward.

The inclusion of Saudi Arabia in particular is likely to accelerate talk of de-dollarisation. As mentioned above the Kingdom had been mooted as a possible member but the geopolitical implications as well as its relationship with the West made the prospect even more intriguing. The move will now spark debate about the use of local currencies for trade among the Bloc specifically when it comes to crude oil. The addition of Saudi Arabia, Iran and UAE would see the group make up almost 42% of the global crude oil output.

However as mentioned previously de-dollarisation is a complex topic given the makeup of global markets. Saudi Arabia may be viewed as the key given the Kingdoms position in global oil trade. Despite discussions with India and China about accepting payment in Rupees and Yuan the Saudis have thus far remained stubborn which may have something to do with the Saudi Riyal being pegged to the US Dollar.

Interesting times ahead indeed but the expansion does certainly pave the way for more serious talk around de-dollarisation. The task of accomplishing that, however, is another story altogether and would require time, willpower, diplomacy and the willingness of the BRICS Bloc to put the Group first at times if it wishes to achieve de-dollarisation.

JACKSON HOLE AND US DOLLAR RISK

As the BRICS summit comes to a close all eyes are now on the Jackson Hole Symposium which will play host to Central Bankers from the G7 in Wyoming, United States. Last year the symposium focused on the growing challenge of inflation and the impact saw volatility and fireworks across markets, something Central Bankers would like to avoid this time around. The reason I say this is given the recent uncertainty around China and further downgrade to US Banks by S&P Global earlier this week coupled with dire set of PMI data from Europe and the US we could see a more cautious and pragmatic approach from Central Banks.

The US Dollar continues to surprise at the minute supported by the rise in US yields as well as some safe haven demand thanks to ongoing uncertainty. Following a bout of weakness yesterday the Dollar Index resumed its advance today with USDZAR rebounding following a brief stint below the 18.50 handle. Any comments from Central Bankers at Jackson Hole have the potential to cause a ripple effect in markets with volatility to be expected heading into the weekend.

FINAL THOUGHTS AND TECHNICAL OUTLOOK

USDZAR from a technical standpoint has always fascinated me as we tend to trend for a sustained period of time. Looking back historically and trends seem to run for 3-4 months at a time before we see a significant change in the overall trend of the pair. This is something which has continued this year with the upside rally beginning on February 2 from the lows around the 16.9200 mark all the way to the 19.9200 mark on June 1.

Looking ahead and the drop this week toward support around the 18.50 handle was met with significant buying pressure with USDZAR up around 1.78% at the time of writing, trading at 18.77. Support was provided by a combination of the 50 and 100-day MA with immediate resistance on the upside around the 19.00 handle. Fed Chair Jerome Powell is expected to deliver remarks at Jackson Hole tomorrow and that could have an impact on the immediate direction of USDZAR.

However, given signs of economic improvement and a lower inflation rate, any sign that the US could be done on their hiking cycle could help facilitate another leg to the downside for USDZAR. As seen with many asset classes of late fundamental factors are playing a key role and I expect USDZAR to be no different.

USD/ZAR Daily Chart, August 24, 2023

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