USD/ZAR: South African rand relentless sell-off set to continue

The USD/ZAR price maintained its bullish trend after the relatively weak South African inflation data. The pair rose to 14.9932, which was about 11% above the lowest level in June.

Risk-off sentiment

The South African rand weakened against the US dollar as the risk-off sentiment spread in the market. This sentiment was mostly triggered by the decision by New Zealand’s government to announce a new level 4 lockdown. This happened after the country discovered one Covid-19 case. 

Other countries like the UK, South Africa, and the US have recently announced a significant increase in the number of Covid cases. Therefore, the USD/ZAR price rose as investors rushed to the safety of the US dollar.

Meanwhile, the pair also rose after South Africa released the latest inflation data. Numbers published by the country’s statistics agency showed that the headline consumer price index rose from 0.2% in June to 1.1% in July, This increase was in line with what analysts were expecting. At the same time, the CPI declined from 4.9% in June to 4.6% on a year-on-year basis.

At the same time, core CPI, which excludes the volatile food and energy prices declined from 3.2% to 3.0% on an MoM basis. It rose from 0.3% to 0.5% on an annualised basis. Therefore, the USD/ZAR price rose because the numbers removed the urgency for the South Africa Reserve Bank (SARB) to hike interest rates.

The next key catalysts for the USD/ZAR will be economic data from the United States and the Federal Open Market Committee (FOMC) minutes. The US will publish the latest housing starts and building permits on Wednesday while the FOMC will publish its minutes during the American session. 

USD/ZAR technical forecast

The daily chart shows that the USD/ZAR pair has been in a strong bullish trend recently. Along the way, the pair has moved above the upper side of the descending channel shown in blue. Additionally, it has risen above the 50-day and 25-day exponential moving averages (EMA).

The pair has also moved above the 23.6% Fibonacci retracement level that joins the highest level in April last year and the YTD low. Therefore, the pair will likely maintain the bullish trend as the South African rand weakens against the US dollar. The next key level to watch will be the 38.2% retracement level at 15.65.