This indicator makes rand a buy, but not many are heeding it

A key technical indicator shows the rand is further into oversold territory than it’s been at any time in the past two-and-a-half years. That counts for little amidst an emerging-market sell-off that’s seen South Africa’s currency plunge to its weakest level since November.

The dollar-rand 14-day relative strength index rose above 78 on Tuesday to its highest level since January 2016. Many technical traders view anything above 70 as a sign that the dollar is overbought and due for a correction. It’s been above that threshold since Thursday, but the rand’s showing no sign of turning, having lost 3.3% against the dollar this week alone.

The dollar’s RSI is now higher for the rand than for any of its main emerging-market peers, including Argentina’s peso.

Some Wall Street banks believe the worst is over for the rand. Morgan Stanley reiterated on Tuesday that the currency will end the year at 11.4 per dollar, a 22% appreciation from the current spot price of 13.88. That’s mainly because it sees the dollar’s rise since April ending.

But plenty of others are less sanguine. Citigroup said in a note Monday that there’s little reason for investors to re-establish long positions in the rand. Technical indicators, it seems, matter less to traders with a global environment this choppy.

“If it’s not Turkey it’s Italy, and if it’s not Italy then it’s the trade wars,” Gordon Kerr, a fixed-income trader at Johannesburg’s FirstRand Bank, said. “There seems to be reason after reason for emerging markets to sell off.”