South African rand braces for more weakness

The USD/ZAR exchange rate continued its bullish run after the US published stronger-than-expected consumer inflation numbers on Tuesday. It drifted to a high of 18.00, which was the highest point since Friday. In all, the South African rand has lost about 7.59% of its value against the IS dollar since January 12.

South Africa inflation data ahead

The USD to ZAR pair has been in a strong comeback after it plunged to a low of 16.50 in December last year. This rebound is mostly because of the challenges facing the South African economy as it grapples with a prolonged power shortage. 

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It is ironic that South Africa, the most advanced economy in the continent cannot sufficiently provide power to its population. For one, the country is one of the biggest exporters of coal, which power most of the power plants in the country. 

In a statement last week, the South African president declared a ‘state of national disaster’ because of the power crisis. The impact of this situation could be dire for an economy whose official unemployment rate stands at over 30%. Many companies, especially in the manufacturing sector, could move to other countries because of the high cost of doing business. 

The USD/ZAR pair rose after the strong US inflation data, which I covered in this article. The data showed that the country’s inflation dropped for the seventh straight month albeit at a slower pace than expected. It stands at about 6.4%, which is slightly lower than the previous month’s 6.5%. Inflation rose on a monthly basis. 

The next main catalyst for the USD to ZAR price is the upcoming South Africa inflation data scheduled for Wednesday. Economists expect that the country’s inflation dropped from 0.4% in December to -0.1% in January. On a yearly basis, the CPI is expected to come in at 6.9%. Analysts expect that core inflation remained unchanged at 4.9%. 

USD/ZAR price forecast 

The USD to rand exchange rate has been in a strong bullish trend in the past few weeks amid rising concerns about the South African economy. It has formed several higher highs and higher lows during this period. 

The USD/ZAR pair is also supported by the 25-day and 50-day moving averages (MA). This price is also important since it was the highest point on December 1 last year. Therefore, the pair will likely continue rising in the coming days as buyers target the key resistance level at 18.10 (YTD high).