USD/ZAR: South African Rand receives strong support as the economy improves

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The USD/ZAR is at a strong support level as traders respond to positive economic data from South Africa
Absa Bank data showed that the manufacturing PMI rose to 60.9, the highest level ever recorded.
The pair is also awaiting the outcome of the general election in the US.

The USD/ZAR exchange rate has hardly changed today as traders focus on the U.S. elections and mixed economic data from South Africa. It is traded at 16.2070, which is close to double the low of 16.10.

USD/ZAR on strong support
South Africa: Decline in production

Two separate reports from Markit and Absa Bank showed that the country’s manufacturing sector made some progress in October. This was due to rising domestic orders and the government’s relaxation of movement restrictions. In fact, the number of daily infections has dropped from a peak of 13,000 in July to less than 1,000.

The Markit manufacturer’s PMI rose to 49.4 in October from 45.3 the previous month. This was the highest level in 11 months and is proof that business activity has improved. The report cited rising production, new orders, employment and purchase stocks. Most companies were also relatively confident about the coming months. In a statement David Owen, an economist at Markit, said

“However, production and demand expansions will be necessary to help companies revive labor markets as employment continues to decline sharply. An increase in jobs is likely to occur after an increase in economic activity, as companies will need time to recover from the pandemic losses”.

Further data from Absa Bank showed that the manufacturing PMI rose to 60.9 in October. This was the highest level since the bank began compiling the figure in 2012. The report said:

“The further rise at the beginning of the fourth quarter is an encouraging sign that the manufacturing sector continues to recover after a record contraction in April”.

However, data from South Africa showed that fewer people bought cars in October. In total, the number of cars sold in October fell to 38.75 thousand, down 25.70% year-on-year.

The USD/ZAR price is also focused on the upcoming general election in the United States, followed by the Fed’s interest rate decision and non-agricultural payroll numbers.

Technical outlook USD/ZAR
Technical card USD/ZAR

The USD/ZAR pair is trading at 16.2070. On the daily chart, this price is slightly below the 25-day and 15-day exponential moving averages. It is also near a strong support level, below which the price has been struggling to move lower since June. The price has also formed a descending triangle pattern, which is shown in green.

However, this triangle is not near its confluence zone. This means that the pair is likely to stay within the current range. However, a clean break below the support at 16.00 is a confirmation for bears and may lead to further declines.

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