USD/ZAR: South African rand steady ahead of SARB decision

The South African rand has continued to strengthen in the past few months. The USD/ZAR crashed to the lowest level since October as commodity prices rose. It is trading at 14.76, which is about 9.87% below the highest level in 2021.

SARB decision 

The USD/ZAR price decline gained steam on Wednesday even after the country published mild inflation data. According to the country’s statistics agency, the headline consumer inflation rose by 0.6% in February, which was lower than the median estimate of 0.7%. This growth translated to a year-on-year increase of 5.7%. The YoY change was unchanged from the previous month.

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Excluding the volatile food and energy products, the country’s inflation rose by 3.5% in February. Again, this was lower than the median estimate of 3.6%. It is also a more stable inflation rate than in other countries like the US and the UK. 

These numbers came a day ahead of the latest South Africa Reserve Bank (SARB) interest rate decision. Economists expect that the bank will do what the Fed and the BOE did this week and hike interest rates by another 0.25%.  It has already made two rate hikes in the past few months its bid to deal with the rising inflation.

Still, the biggest concern for SARB and other emerging market central banks is the rise of stagflation. This is a situation where high inflation is usually accompanied by low economic growth. The South African economy is in stagflation considering that its unemployment rate remains stubbornly high,

One area that is providing growth is in the commodities industry. In the past few months, the prices of some of the top commodities that South Africa sells like gold, platinum, and palladium jumped because of the crisis in South Africa.

USD/ZAR forecast

The four-hour chart shows that the USD/ZAR pair has been in a strong bearish trend in the past few months. Along the way, it managed to move below the key support level at 14.92, which was the previous lowest level this year. It also moved below the 25-day moving average while the MACD has moved below the neutral level.

Therefore, while the overall trend is bearish, there is a likelihood that it will resume the bullish trend as it attempts to retest the key resistance at 14.92. This is known as break and retest pattern.