USD/ZAR: South African rand set to break out after strong inflation data

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 wife, son,… read more.
on Apr 21, 2021
  • The USD/ZAR has formed a bearish pennant on the 4H chart.
  • The South African rand is reacting to the latest inflation numbers.
  • The pair could soon drop to 14.00 as traders anticipate more SARB tightening.

The USD/ZAR price was little changed today as the market digested the latest South African inflation numbers. The South African rand is trading at 14.3050, which is 1% above last week’s low of 14.15. 

USD/ZAR
USD/ZAR chart

South Africa inflation data

The South African statistics agency published relatively strong consumer inflation numbers. The data revealed that the headline CPI increased to 3.2% in March after rising to 2.9% in the previous month. It rose by 0.7% on a month-on-month basis in February. These numbers were in line with what analysts were expecting.

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Meanwhile, the core consumer price index that excludes key items declined from 0.6% in February to 0.5%. It fell from 2.6% to 2.5% on a year-on-year basis. The two were worse than the expected increase to 0.7% and 2.7%, respectively. 

According to the agency, the main contributors to higher prices were non-alcoholic drinks and food. Housing and utilities also boosted the prices. Further, goods and services inflation increased by 3.9% and 2.6%, respectively. 

These numbers came a week after the US Bureau of Statistics published the country’s inflation numbers. The data revealed that the headline consumer price index rose by 2.6% in March while the core CPI rose modestly to 1.6%. 

Recently, the USD/ZAR has been relatively weak as traders eye the actions of the South Africa Reserve Bank. A higher inflation rate could force the central bank to start tightening its monetary policy. In its recent decision, the bank signaled that it would hike by the end of the year. By so doing, it will join other emerging market central banks like those in Brazil and Turkey to start tightening. 

USD/ZAR forecast

USD/ZAR
USD/ZAR technical chart

The USD/ZAR pair was little changed after the latest South African inflation data. On the hourly chart, the price is at the same level as the 25-day and 15-day exponential moving averages (EMA). It is also between the 78.6% and 61.8% Fibonacci retracement levels. Also, the pair seems to be forming a symmetrical triangle pattern that is shown in red. Therefore, in the near term, the pair may remain at the current range. However, in the longer term, the pair may break out lower considering that this triangle seems to be a bearish pennant on the four-hour chart. As you will find in our free forex course, this pattern is usually a bearish signal.

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