USD to rand forms double-bottom ahead of SARB

The USD/ZAR exchange rate drifted downwards as investors focus on the upcoming interest rate decision by the South Africa Reserve Bank (SARB). It dropped to a low of 18.12, which was about 3.12% below the highest point this year.

SARB rate decision

The key forex news on Thursday will be the upcoming interest rate decision by the SARB. This decision comes at a time when the South African rand has strengthened slightly in the past few weeks. Also, it comes as the country battles key challenges.

South Africa’s inflation remains at an elevated high. The relatively weak rand has played an important role in boosting prices since South Africa is an importer of oil and gas. Data published by the Bureau of Economic Research shows that the average inflation expectations rose to 6.3% in Q1 from the previous 6.1%. 

The report estimates that inflation will drop to 5.8% in 2024 and then slow to 5.5% in 2025. At the same time, the country is facing significant power challenges. Power outages are continuing as the coal transportation crisis escalates. SARB believes that this crisis will cost the economy about 2% of growth.

Therefore, as I wrote in this report, the SARB will balance the need to control inflation without causing a deeper financial crisis. Analysts expect that the bank will hike rates by 0.25% as the hiking cycle draws to a close. It has already increased rates by 375 basis points since November 2021. With inflation expectations falling, the bank will signal that it will end its hikes soon.

The USD/ZAR price will also react to other important economic numbers. For one, the US will publish the final reading of its third-quarter GDP report. It will also publish the closely-watched PCE data on Friday.

USD/ZAR technical analysis

The USD to ZAR forex pair is sitting at a key level of support ahead of the upcoming interest rate decision by SARB. The pair was trading at 18.13, which was an important support level at 18.05. This is a crucial level of support considering that it failed to move below it on March 3, 14, and 23rd. 

The USD to rand pair has also moved below the 25-period and 50-period moving averages while the MACD has moved below the neutral point. It has also formed a small double-bottom pattern. Therefore, a bullish breakout will likely happen after the SARB decision. However, a drop below the support at 18 will invalidate the bullish view.