USD/ZAR: rand under pressure ahead of South Africa 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… read more.
on Jun 22, 2021
  • The USD/ZAR pair popped as the US dollar bounced back.
  • The dollar index jumped by more than 0.15% on Tuesday.
  • Rand will next react to the latest South African inflation data.

The USD/ZAR pair spiked on Tuesday as the dollar strength returned. The pair rose to 14.40, which was 0.75% above the closing price on Monday. It is up by more than 7% from the lowest level this month.

South African rand
South African rand chart

Dollar strength resumes

The US dollar bounced back on Tuesday after retreating on Monday as investors waited for Jerome Powell’s testimony to Congress. This will be the first time that the Fed Chair is interviewed after last week’s interest rate decision. 

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In it, the Fed decided to leave its interest rate unchanged between 0% and 0.25%. It also decided to extend its quantitative easing program. The key reason why the US dollar bounced back after the decision is that the bank hinted that it would hike interest rates in 2023. 

Emerging market currencies struggled as the US dollar rallied. The closely-watched MSCI International Emerging Market Currency Index fell from $1,752 to $1,730. This is because higher interest rates in the US will make it relatively expensive for emerging market debt.

The USD/ZAR is rising as investors wait for the upcoming Jay Powell testimony before Congress. The Fed chair is expected to address concerns about the change of tone by the Fed. Also, he will likely temper down hopes that the bank was abandoning its easy-money policies.

The South African rand is falling ahead of the latest inflation data from the country. The data is expected to show that the headline consumer price index (CPI) rose from 4.4% in April to 5.2% in May on a year-on-year basis. They see the CPI falling from 0.7% to 0.1% on an MoM basis. In the same period, they see the annualised core CPI rising from 3.0% to 3.2%. These numbers will provide a signal of what the South Africa Reserve Bank (SARB) will do in the coming meetings.

USD/ZAR technical analysis

USD/ZAR
USD/ZAR chart

The daily chart shows that the USD/ZAR pair declined to a multi-year low of13.41 early this month. This trend changed last week when the Fed delivered its interest rate decision. Since then, the pair has moved above the 25-day and 50-day exponential moving averages (EMA). It has also crossed last year’s low of 13.92. Similarly, the two lines of the MACD indicator have turned higher. Therefore, the talk of tightening in the US will likely push the pair to the 38.2% retracement level at 15.66.

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