USD/ZAR: No end in sight for the South African rand rally

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 May 11, 2021
  • The USD/ZAR price retreated to the lowest level since July 2019.
  • Data showed that South Africa’s manufacturing production surged in March.
  • There is a divergence between the Federal Reserve and SARB on policies.

The USD/ZAR price declined slightly after the relatively strong economic data from South Africa. The pair dropped to 13.9680, which is 4% below this month’s high of 14.5480. 

South African rand
South African rand chart

South African rand gains momentum

The South African rand has been on a strong upward trend against the US dollar in the past few months. It has dropped by more than 22% in the past 12 months and is trading at the lowest level since July 2019. 

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This performance is partly because of the divergent paths between the South African Reserve Bank (SARB) and the Federal Reserve. In its previous decisions, SARB has hinted that it will hike interest rates later this year to curb inflation. Other emerging market central banks like those in Brazil, Russia, and Turkey have already hiked rates. 

On the other hand, the Fed has consistently stated that it will leave monetary policy intact because of the uneven recovery. As such, the CME FedWatch tool points to no rate hike for the next few years. Still, this could change if the American economy records a faster pace of recovery. 

The USD/ZAR pair declined after data by the South African statistics agency showed that the manufacturing sector recovered in March. In total, manufacturing production rose by 3.4% after falling by 1.2% in the previous month. This increase was better than the median estimate of 0.4%. The number was in line with what the Standard PMI showed last week. 

Other numbers from South Africa have been relatively strong. The mining sector is recovering, helped by the robust commodity prices. Indeed, gold has surged to the highest level in three months while other South African commodities like platinum and palladium have surged. The retail sector is also getting vibrant while the unemployment rate is stabilising. Like all pairs, the USD/ZAR will next react to the latest US inflation numbers.

USD/ZAR technical forecast

usd/zar
USD/ZAR technical chart

The daily chart shows that the USD/ZAR has been on a strong bearish momentum lately. Indeed, it has declined in the past five consecutive days. The pair has managed to move below the 25-day and 15-day exponential moving averages (EMA). It has also dropped below 14.00 for the first time in years. The Relative Strength Index (RSI) has also continued dropping. Therefore, the path of least resistance for the pair is lower as forex traders target the next key support at 13.50.

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