USD/ZAR forecast: bullish flag points to more rand weakness

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 Sep 23, 2021
  • The USD/ZAR pair retreated and then rebounded after the SARB decision.
  • The bank left interest rates unchanged at 3.5% and boosted its economic outlook.
  • The decision came a few hours after the Fed decision.

The USD/ZAR price rebounded after the latest Fed and South Africa Reserve Bank (SARB) interest rate decision. The pair rose from this week’s 14.56 to 14.72. 

SARB interest rate decision

The SARB concluded its two-day monetary policy meeting on Thursday and did what most analysts were expecting. The central bank decided to leave interest rates unchanged at 3.5%, where they have been in the past several months. This decision was in line with what economists polled by Reuters and Bloomberg were expecting.

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The bank expects that the country’s economy will grow to 5.3% in 2021, better than the previous estimate of 4.2%. It cited the recent progress on vaccinations and the fact that the country has handled the new wave well. 

Still, the bank expects that the consumer price index (CPI) will keep rising in the near term. It sees the headline CPI rising to 4.4%, which is between its target range of between 3% and 6%. In a note, the governor said:

“With largely unchanged inflation expectations and even with continued upside risks, the committee expects inflation to stay close to the midpoint over the forecast period.”

The SARB decision came less than 24 hours after the Federal Reserve delivered a relatively hawkish interest rate decision. The bank expects to have between 6 and 7 interest rate hikes until 2024. It also expects to start tapering in the coming year. Still, some analysts expect that the bank will start tapering by the end of this year.

USD/ZAR technical forecast

USD/ZAR

The four-hour chart shows that the South African rand bounced back immediately after the latest SARB interest rate decision. The USD/ZAR then rebounded sharply as investors reflected on the rate decision. 

The pair has moved above the 50% Fibonacci retracement level of 14.72. It has also moved above the lower side of the bullish flag pattern that is shown in black. Also, it is attempting to move above the 25-day and 50-day moving averages.

Therefore, there is a likelihood that the pair will rebound in the near term. This view will be confirmed if it manages to move above the upper side of the bullish flag pattern. If this happens, the next key level to watch wull be the 61.8% retracement level at 14.88.

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