USD/ZAR: South African rand could spike ahead of SARB decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Mar 24, 2021
  • The USD/ZAR pair has formed a bearish flag pattern.
  • The South African Central Bank will publish its decision tomorrow.
  • Analysts expect it to leave rates unchanged but be a bit hawkish.

The USD/ZAR is falling ahead of the South African Reserve Bank (SARB) interest rate decision. It is trading at 14.7673, which is 1.20% below this week’s high of 14.93.

USD/ZAR
USD/ZAR chart

SARB rate decision preview

The South African Central Bank started its monetary policy meeting today and it is scheduled to publish the decision tomorrow. Economists polled by Reuters expect the central bank will leave interest rates unchanged at 3.5% and hint at a future rate hike. Furthermore, other emerging market central banks like those from Turkey and Brazil have already made surprise hikes.

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However, the recent data show that the bank could have an incentive to hike rates later this year. Data by the South African statistics agency showed that the headline consumer price index (CPI) increased from 0.3% in January to 0.7% in February. This increase was relatively lower than the median estimate of 0.9%. The CPI declined from 3.2% in January to 2.9% on a year-on-year basis.

Meanwhile, core CPI, which excludes the volatile food and energy prices, increased from 0.1% in January to 0.6% in February. It fell from 3.3% to 2.6% on a year-on-year basis. Like the CPI, core CPI was also worse than estimates. Tomorrow, the bureau will publish the latest producer price index (PPI) data.

The biggest challenge for the SARB and other EM central banks is that the unemployment rate remains high even as inflation rises. Worse, consumer prices will likely keep rising if crude oil and other commodity prices keep rising.

The USD/ZAR is falling even as the US dollar rises against key developed country currencies. Indeed, the dollar index has rallied by more than 1% in the past five days as the US Treasury yields cool.

USD/ZAR technical forecast

USD/ZAR
USD/ZAR bearish flag

The four-hour chart shows that the USD/ZAR price has declined substantially today. However, it remains between an ascending channel that is shown in black. Most importantly, the pair has formed a bearish flag pattern and is slightly below the short and longer-term moving averages. Therefore, the pair may break-out lower tomorrow after the SARB interest rate decision. If this happens, the next key South African rand level to watch is 14.600, which is 1.3% below the current level. You can trade this price action using a good forex and CFD trading broker.

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