Rand outlook as South Africa inflation soars

The USD/ZAR price tilted upwards on Wednesday after the latest South Africa consumer inflation data. It rose to a high of 17.05, which was a few points below this month’s high of 17.14. It has rallied by about 12% above the lowest level in June of this year.

South Africa inflation

The USD to ZAR exchange rate continued rallying even after the latest inflation numbers from South Africa. According to the country’s statistics agency, the headline consumer price index (CPI) rose from 1.1% in June to 1.5% in July. This increase was higher than the median estimate of 1.4%.

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South Africa’s inflation rose from 7.4% to 7.8% on a year-on-year basis, which was also higher than the expected 7.7%. This inflation was the highest it has been in decades.

Excluding the volatile food and energy prices, inflation rose from 0.6% in June to 0.7% in July. Also, this increase was higher than the expected 0.6%. It rose by 4.6% on a year-on-year basis. The statistics agency noted that the prices of most items had gone up.

These numbers came a day after the agency published the latest unemployment data. South Africa’s unemployment rate dropped slightly from 34% in Q1 to about 33% in the second quarter.

Therefore, the South Africa Reserve Bank (SARB) will be under intense pressure since inflation and the jobless rate are at elevated levels.

SARB has acted to lower inflation by hiking interest rates. The challenge is that more hikes will dramatically curtail spending, which will lead to more economic consequences.

The USD/ZAR forex price also rallied because of the extremely hawkish Federal Reserve. In a statement, Fed’s Neel Kashkari said that the bank will continue hiking interest rates until it sees inflation falling.

USD/ZAR forecast

The four-hour chart shows that the USD/ZAR price has been in a strong bullish trend in the past few months. The current leg of the rally happened after the pair dropped to a low of 16.10, which was the lowest level on August 11. 

The pair has moved above the 25-day and 50-day moving averages while the MACD has started a bearish divergence. Still, the pair will likely continue rising as the South African rand targets the important level at 17.30. A drop below the support at16.91 will invalidate the bullish view.