USD/ZAR forecast ahead of South Africa inflation report

The USD/ZAR exchange rate remained under pressure this week as traders waited for the upcoming South African inflation report, which will provide more information on what to expect from the country's central bank. It was trading at 16.3600, much lower than the year-to-date high of 17.2350.

South African rand steady ahead of inflation report 

The USD/ZAR pair will be in the spotlight in the coming days as investors react to the upcoming consumer inflation report, which will provide more information on the impact of the Iran war on prices.

Data compiled by TradingEconomists expect the data to show that the headline consumer inflation jumped to 4.1% in March as energy prices jumped. Inflation stood at 3% in the previous month.

Core inflation, which excludes the volatile food and energy prices, is expected to jump from 3% in February to 3.6%, the highest level in months.

These numbers are notable as they are higher than South Africa’s central bank target of 3%. Before the new target, the central bank was targeting inflation to be between 3% and 6%.

South Africa will also publish the latest retail sales report, which will shed more color on the state of the economy. Economists expect the report to show that the headline retail sales softened to 2.7% in February from the previous 4.2%.

Analysts believe that these numbers will push the country’s central bank to maintain the status quo in the coming meeting in May. It has left interest rates unchanged at 6.75% in the last two meetings.

The South African rand is being boosted by the rising gold price, which has moved from a low of $4,099 on March 23rd to $4,810 today. If this trend continues, gold will likely continue rising, possibly to the all-time high of $5,600, which will benefit South Africa as it is one of the top exporters.

Additionally, there are signs that foreign investors are starting to buy South African stocks after they crashed hard in March. In a statement on Monday, Ninety One Plc argued that South African equities were bullish, helped by their cheap valuations.

Kevin Warsh testimony and Iran war progress 

The next important catalyst for the USD/ZAR pair is the upcoming Kevin Warsh hearings in the Senate. Warsh will likely be asked about the state of the American economy and whether he supports interest rate cuts as President Donald Trump has pushed. 

Warsh will not say whether he will be open to cutting interest rates. However, his statement may provide more clues on what to expect.

The USD/ZAR pair will react to the upcoming US retail sales and pending home sales data, which will come out on Tuesday. These numbers will provide more information on the impact of war on consumer spending.

USD/ZAR technical analysis 

USDZAR chart | Source: TradingView 

The daily timeframe chart shows that the USD/ZAR pair has come under pressure in the past few weeks, moving from a high of 17.2350 in March to the current 16.7.

The pair’s retreat happened after the pair formed a rising wedge pattern, which is made up of two ascending and converging trendlines.

It has dropped below the 50-day Exponential Moving Average (EMA). Also, the Relative Strength Index (RSI) has moved below the neutral level.

Therefore, the pair will likely continue falling as sellers target the next key support level at 16.0. This view will be confirmed after falling below the key support at 16.1815.