Cocktail of negatives is keeping battered rand on the back foot

The rand isn’t likely to join the party in emerging markets any time soon, if technical indicators are a guide.

The currency’s relative strength index, which signals when a security is overbought or oversold, shows that the rand has more room to fall, even after suffering its biggest weekly loss since February. The momentum gauge is still lower than 70, a level used by some traders to indicate the dollar is overbought.

And having breached the 75.4% Fibonacci retracement level, the rand may target the September level of 15.70.

The currency plummeted after gross domestic product data showed South Africa had its worst quarterly performance since 2009. Infighting within the ruling African National Congress over the mandate of the country’s Reserve Bank exacerbated losses as investors questioned whether President Cyril Ramaphosa has enough support to advance his reform agenda.

To add to investors’ worries, state-owned companies from Eskom to South African Airways are back in the spotlight for the wrong reasons. S&P Global Ratings said the nation may be unable to continue supporting the utility and the leaderless airline is continuing its search for a new chief executive while discussing debt terms with banks.

Read: Rand’s bad week set to get worse amid Eskom and economy concerns

“It’s a case of the perfect Molotov cocktail,” said Matete Thulare, a Johannesburg-based analyst at FirstRand Bank “Without sounding too gloomy, the picture looks very grim.”

“The year-to-date upside trend in USD/ZAR remains intact,” said Piotr Matys, a currency strategist at Rabobank in London. “The underlying trend in the South African economy is clearly weak and the outlook will remain challenging until significant progress is made in implementing structural reforms.”

The rand declined 2.5% in the week through Friday to 14.95 per dollar.

© 2019 Bloomberg L.P