USD/ZAR: South African rand loses momentum ahead of SARB decision

Written by: Crispus Nyaga
January 20, 2021
  • The USD/ZAR erased some of the earlier losses ahead of the SARB decision.
  • Data by the statistics bureau showed that inflation declined in December.
  • Some analysts now predict a SARB rate cut tomorrow.

The USD/ZAR price pared-back some of the earlier losses after South Africa released relatively weak inflation data ahead of the SARB decision. The pair is trading at 14.96, which is slightly higher than the intraday low of 14.86. Elsewhere, the EUR/ZAR rose to 18.11 while the GBP/ZAR rose to 20.43.

USD/ZAR
USD/ZAR price action

South Africa weak inflation ahead of SARB decision

The South African Bureau of Statistics published relatively weak inflation numbers that were in line with estimates.

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The headline consumer price index (CPI) dropped from 0.3% in November to 0.2% in December. That led to the annual inflation dropping from 3.2% to 3.1%. The core CPI. which excludes the volatile food and energy products, remained unchanged at 0.2%.

The data came a day after the country released bleak mining data. In total, mining production fell by 11.6% in November. In total, gold, platinum, and iron ore production fell, signaling that the recovery was losing steam. Also, South Africa is battling with the new wave of coronavirus.

Most importantly, the data came as the South Africa Reserve Bank (SARB) starts its first meeting of the year. After delivering several rate cuts last year, some analysts have started pricing-in a cut tomorrow. A 25 basis point cut will see the headline interest rate falling to 3.25%. In a note, analysts at Capital Economists noted:

“The further drop in South Africa’s headline inflation rate, to 3.1% y/y in December, coming alongside the recent tightening of virus containment measures supports our view that the Reserve Bank will cut interest rates at Thursday’s MPC meeting.”

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USD/ZAR technical outlook

USD/ZAR
USD/ZAR technical chart

The USD/ZAR is trading at 14.96, which is lower than last week’s high of 15.68. On the daily chart, the price is below the descending trendline that’s shown in black. This line connects the highest point in September last year and the YTD high. The South African rand is also at the same level as the middle line of the Bollinger Bands

Therefore, even after paring-back some of the losses, I believe that the USD/ZAR will continue falling as bears target the YTD low at 14.47. Still, because of the SARB decision, the pair could see significant volatility. So, you can use a forex demo account to practice.