USD/ZAR forecast: rand at risk amid South Africa power outages

The USD/ZAR price soared to a record high on Monday as investors braced for more weakness of the South African economy. The pair surged to a high of 17.76, which was about 23% above the lowest level this year. 

South Africa power cuts and SARB decision

The USD/ZAR price has been in a strong bullish trend in the past few weeks as investors focus on the strong US dollar. The dollar index has surged to the highest point in more than two decades as investors embrace a more risk-off sentiment. 

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At the same time, the extremely hawkish Federal Reserve has pushed more investors and businesses to the safety of the US dollar. With US inflation at an elevated level, there is a likelihood that the Fed will hike interest rates by either 75 or 100 basis points this week, as we wrote here.

The next key catalyst for the USD/ZAR price is the fact that the South African economy is at risk of a steeper meltdown. In a statement on Saturday, Eskom, the monopoly power generator started to implement Stage 6 power cuts, which will lead to an unprecedented level of blackouts.

The power cuts happened after two units of its coal plants at Kusile and Kriel power stations broke down. In a statement, the power company said that it would withdraw 6,000 megawatts from its grid. As a result, the country is now facing its worst crisis on record, which has reached 100 this year.

The impact of these power cuts is that they will raise the cost of doing business and reduce the country’s productivity in the long run, 

The other important catalyst for the South African rand will be the upcoming interest rate decision by the South African Reserve Bank (SARB). Analysts expect that the bank will deliver another rate hike later this week.

USD/ZAR forecast

Turning to the daily chart, we see that the USD to ZAR forex exchange rate has been in a strong bullish trend in the past few weeks. Last week, it managed to move above the important resistance level at 17.28, which was the highest level in July.

Now, the pair has moved above the 25-day and 50-day moving averages, which is a bullish sign. The Relative Strength Index (RSI) has moved close to the overbought level.

Therefore, the USD/ZAR price will continue soaring as buyers target the next key resistance level at 18. A drop below the support at 17.28 will invalidate the bullish view.