USD/ZAR forecast: South African rand rally set to accelerate

The USD/ZAR price bounced back after the relatively weak ADP private payrolls numbers. The South African rand declined to 14.36 during the overnight session.

South African rand rally falters

The USD/ZAR pair has been in a strong bearish trend in the past two weeks. It has dropped by about 4.4% from its highest level in July this year. This trend was mostly because of the prevailing peace in South Africa. As you recall, the country went through a difficult patch in July after Jacob Zuma reported to prison. 

The impact of the riots was seen this week when Markit published the latest manufacturing PMI numbers. On Monday, data showed that the manufacturing PMI declined remarkably in July. The PMI declined from 57.4 in June to 43.5 in July. A PMI figure of 50 and below is a sign that the industry is struggling.

The same view was revealed on Wednesday when Markit published its PMI number. The report said that the PMI declined from 51.0 to 46.1. Therefore, the USD/ZAR pair has probably rallied because analysts expect that the economy will rebound as peace prevails.

Still, the South African economy is struggling, with consumer prices expected to keep rising. The unemployment remains above 40%. Indeed, in the past SARB interest rate decision, the members turned less hawkish because of these issues.

Looking ahead, the USDZAR price will react to the latest US jobs data. On Wednesday, data by payrolls data by ADP showed that the economy added about 330k jobs in July. This was a smaller increase than what analysts were expecting. The official numbers will come out on Friday this week. The median estimate is that the economy added more than 800k jobs while the unemployment rate retreated.

USD/ZAR technical analysis

The 4H chart shows that the USD/ZAR pair formed a rising wedge pattern from early June. This pattern continued until July, when the price broke out lower. The pair has moved below the 25-day and 50-day moving averages (EMA). It has also formed what looks like a head and shoulders pattern. 

Therefore, the pair will likely maintain the bearish view in the near term. That will see it keep falling as bears target the next key support level at 14.00. This view will be changed if the price rises above 14.70.