USD/ZAR: South African rand eases ahead of SARB interest rate decision

Written by: Crispus Nyaga
November 19, 2020
  • The USD/ZAR pair is up for the third straight day ahead of the SARB interest rate decision.
  • Economists expect the bank will leave rates intact at 3.50%.
  • The decision comes at a time when risk-on sentiment has pushed rand to March highs.

The USD/ZAR is up for the third straight day ahead of the South African central bank interest rate decision. The South African rand is trading at 15.5281 against the US dollar, which is relatively higher than last week’s low of 15.2200.

South African rand chart

South Africa Reserve Bank (SARB) decision

The South African central bank, which started its monthly monetary policy meeting yesterday, will deliver its verdict today at 13:00 GMT.

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According to Bloomberg, most economists believe that the bank will leave interest rate at the current level of 3.5%. This rate is 300 basis points lower than where it was before the Covid-19 pandemic.

Analysts point to the improving situation in South Africa, where the number of daily Covid cases has been falling. They also point to the fact that the country’s economy probably bounced back by 45.2% in the third quarter after dropping by more than 40% in Q2.

Most importantly, analysts argue that the country’s inflation rate will hinder the bank from moving. The latest report by the South Africa’s Bureau of Statistics showed that consumer prices rose by 3% in September. That was at the lower range of SARB’s target and below the August’s increase of 3.1%. In a statement, Boingotlo Gasealahwe, an economist said:

“South Africa is the only exception, given its still benign inflation outlook. However, we expect the South African Reserve Bank to stay on hold as the risks are already accounted for in its aggressive front-loading of rates to date.”

South African rand strength

The SARB rate decision at a time when the forex market investors have pushed the USD/ZAR to the lowest level since March this year. The pair has dropped by almost 20% from its highest level in March, making the South African rand among the best performers.

Recent gains in the rand come as risk-on investors move to the riskier emerging market currencies because of the Covid vaccine. In recent weeks, companies like Moderna, Pfizer, and BioNTech have said that their vaccines are more than 90% efficient.

As a result, investors have moved to EM currencies like the rand and Mexican peso and abandoned safe currencies like the dollar and yen. Indeed, the dollar index has dropped to a low of 92.45 this month.

Joe Biden victory has also contributed to the strength of the South African rand. Analysts believe that the new president will try and avoid trade conflicts, which tend to be better for safe currencies.

USD/ZAR technical analysis

South African rand
USD/ZAR chart

The USD/ZAR has been on a strong downward trend since March when it peaked at 19.3294. During this decline, the pair found strong support at 16.3423 and 16.0942. Bears prevailed on the latter on November 3. The price is slightly above the 78.6% Fibonacci retracement level and below the shorter and medium-term moving averages. It is also slightly below the 25-day moving average. Therefore, I expect the pair to maintain the downward momentum and possibly move below this week’s low of 15.2854.