USD/ZAR forecast: South African rand vulnerable as inflation retreats
- The USD/ZAR pair held steady after better South African inflation data.
- The headline CPI rose by 4.9% in June after rising by 5.2% in May.
- The country’s economic situation is expected to worsen due to riots.
The South African rand (USD/ZAR) was relatively unchanged on Wednesday after the relatively strong inflation data. It is trading at 14.6660, which is about 9.56% higher than the lowest level this year.
South Africa inflation
The South African economy has recently gone through one of its toughest challenges in decades. Protests escalated in leading cities like Johannesburg after the jailing of Jacob Zuma. This led to significant destruction, with protesters looting from local stores. More than 200 people died during the protests while 3,400 have been arrested.
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As such, analysts believe that supply shortages and disruptions will push the prices of items higher. They also expect that the overall production of the country’s economy will retreat.
A report published by the country’s statistics office showed that the overall consumer price index (CPI) rose by 4.9% in June after rising by 5.2% in the previous month. The number was relatively lower than the median estimate of 4.8%. The CPI rose by 0.2% on a month-on-month basis.
Meanwhile, the country’s core CPI declined from 19.1% in May to 3.2% in June. Again, this was better than the median estimate of 3.1%. These numbers are lower than the South Africa Reserve Bank (SARB) target of 5.0%. Therefore, there is a possibility that the bank will maintain its current policies for several more months considering that the country’s unemployment rate has surged to more than 40%.
The USD/ZAR is also struggling as the country deals with the third wave of coronavirus. Data by the government shows that the country is recording more than 8,900 cases every day. This is substantially higher than the number of cases it reported in April. Therefore, the situation will mostly get worse, which could mean lower interest rates for longer.
The USD/ZAR pair has been in an overall bullish trend in the past few weeks. As a result, the pair has moved above the 100-day and 50-day moving averages on the four-hour chart. It has also crossed the important resistance level at 14.50, which was the highest level on May and July 2. The pair is also slightly above the upper side of the ascending channel. Therefore, the South African rand will keep falling, with the next key level to watch being at 14.80.