The rand-dollar exchange rate is about to form a so-called “death cross”, a technical pattern that suggests to some traders the South African currency is poised to weaken.
A death cross occurs when a short-term moving average, usually the 50-day average, crosses above a long-term average, in this case the 200-day measure, which some traders see as a sell signal.
The last time this pattern formed, in June 2018, the rand weakened as much as 12% in the subsequent three months.
The rand has strengthened about 3.7% against the dollar since the beginning of April, the best performance out of 24 emerging-market currencies tracked by Bloomberg, amid the Federal Reserve’s dovish turn and signs of an economic revival in China, the country’s biggest trading partner.
It slipped 0.1% to 13.9830 per dollar by 3.13pm in Johannesburg on Monday.
But the South African currency’s fate may depend on the outcome of general elections on May 8, which are seen as a referendum of President Cyril Ramaphosa’s reform programme.
While most opinion polls predict a solid win for Ramaphosa’s ruling ANC, he may find its hard to implement measures to boost growth, rescue state-owned companies and root out corruption.
That said, a death cross and its opposite, a golden cross, are not always an accurate predictor of future moves. The rand formed a golden cross against the dollar in February, then weakened 5.3% in the subsequent month.