USD/ZAR: South African rand preview ahead of SARB decision

The USD/ZAR pair is in focus ahead of the upcoming interest rate decision by the South Africa Reserve Bank (SARB). The rand is trading at 14.10 against the US dollar.

SARB interest rate preview

The USD/ZAR price is in a tight range as traders wait for the upcoming SARB interest rate decision that will come out on Thursday. Most analysts polled by Bloomberg expect that the bank will leave interest rate unchanged as it tries to balance between rising inflation and a relatively high unemployment rate. 

This is mostly because the bank has signaled that it will have one 0.25% rate hike in the second quarter followed by another one in the final quarter of the year. Also, in a recent interview, Governor Kyanyago said that the bank was likely to maintain an accommodative policy as long as inflation remains steady. He said:

“As long as inflation is remaining contained, the central bank would have no reason to remove the accommodation that we are currently providing.”

The SARB decision will come at a time when the South African economy is staging a recovery. The country has recorded fewer coronavirus cases in the past few weeks and economic numbers have been relatively good. For example, recent data showed that the manufacturing and mining sectors have improved modestly in the past few months. 

On Wednesday, data by the government said that the headline consumer price index (CPI) rose by 0.7% in April leading to an annual increase of 4.4%. This increase was mostly because of energy prices. Without food and energy, inflation rose by 3.0% from the previous 2.5%. The bank has an inflation target of between 3% and 6%.

If the SARB delivers a hawkish decision, the USD/ZAR could extend its previous losses and vice versa.

USD/ZAR technical outlook

The South African rand is trading at 14.1100 against the US dollar ahead of the SARB decision. On the four-hour chart, the price is at the middle line of the Bollinger Bands. It has also entered the Ichimoku cloud. Further, the pair has formed a falling wedge pattern, which is usually a bearish signal. The Klinger Oscillator has also moved upwards. Therefore, the pair will likely remain at the current range ahead of the SARB decision. The key support and resistance levels will be 13.90 and 14.28.