USD/ZAR tilts upwards after strong South Africa GDP data
- The USD/ZAR pair rose on Tuesday even after the strong South Africa GDP data.
- The economy expanded by 1.1% in Q1 after rising by 1.4% in Q4.
- Finance, mining, and trade were the biggest contributors.
The South African rand was little changed against the US dollar after the relatively strong GDP data from the country. The USD/ZAR price rose to 13.56, which was 1.22% above the lowest level this year.
South Africa GDP data
The USD/ZAR pair reacted to the relatively strong South African GDP data. According to the country’s statistics agency, the economy advanced by 1.1% in the first quarter even as the country continued to deal with the new coronavirus wave. The economy rose by 1.4% in the fourth quarter of 2020.
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The bureau cited the finance, mining, and trade sectors as the biggest contributors to the expansion. At the same time, consumer consumption and inventories also helped the recovery. Still, the country’s economy is about 2.7% smaller than it was before the pandemic started. The only laggards in the quarter were the power and agricultural sectors.
Analysts expect that the economy will continue to expand in the second quarter. For one, interest rates remain low and the government is implementing some of its pandemic response measures. Further, commodity prices have risen, which helps the country’s mining sector.
The strong South African GDP data point to the possibility that the central bank will start its tightening policies to tame inflation. In its previous meetings, the bank has signaled that it will likely hike later this year. Still, the country’s inflation has been relatively lower than that of other emerging market countries because of the strength of the South African rand.
The USD/ZAR pair will next react to the latest inflation data from the United States. If the numbers are relatively strong, they will motivate the Fed to tighten earlier than expected. In theory, a hawkish Federal Reserve leads to a risk-off sentiment, which affects the South African rand.
USD/ZAR technical analysis
The USD/ZAR pair has bounced back in the past few sessions. It has moved from the year-to-date low of 13.40 to 13.56. It has also moved above the lower side of the descending channel and has moved slightly above the 25-day moving average. It is also substantially lower than the Ichimoku cloud.
Therefore, in the near term, the South African rand will keep rising as bulls target the upper side of the channel at 13.70. It will then drop and retest the lower line of this channel at 13.40.