USD/ZAR forecast: South African rand rally gets supercharged
- The USD/ZAR price has been in a strong bearish momentum.
- The pair has fallen by more than 5% this month.
- The South African rand rally was supercharged by strong inflation data.
The USD/ZAR price bearish trend accelerated on Wednesday after South Africa published strong inflation data. The pair crashed to 14.40, which was the lowest level since September 16. It has fallen by more than 5% this month.
SARB to hike rates?
South African consumer prices rose in September as the prices of key raw materials rose. According to the country’s statistics agency, the headline consumer price index (CPI) rose from 4.9% in August to 5.0% in September. This increase was in line with what analysts were expecting. Notably, the prices declined from 0.4% to 0.2% on a year-on-year basis.
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Core CPI, which excludes food and energy, increased from 3.1% to 3.2% on a YoY basis. These prices remained unchanged at 0.3% on a MoM basis.
Therefore, with inflation rising, analysts are starting to predict when the South African Reserve Bank (SARB) will start tightening.
A closer look at forward-rate agreements show that the market expects a 25 basis point rate hike in the coming meeting scheduled for November 18. Some analysts even expect that the bank will implement a 0.50% rate hike in November.
At the same time, SARB has guided that it will implement one interest rate hike in the fourth quarter of the year. It will then boost rates by 0.25% in all four quarters of 2022.
Meanwhile, analysts expect that the country’s GDP contracted modestly in the third quarter because of the riots and looting that happened in July.
The USD/ZAR price has also retreated because of the overall weak US dollar. The dollar index has declined substantially this week. This decline has coincided with the earnings season that has seen many companies deliver spectacular results.
The four-hour chart shows that the USD/ZAR pair has been in a strong bearish trend in the past few weeks. The pair has dropped by more than 5% this month. Along the way, it has moved below the key support level at 14.83, which was the neckline of the head and shoulders pattern. The pair has also declined below the 25-day and 50-day moving averages while oscillators have been in a bearish trend. Therefore, while the pair is getting oversold, the path of the least resistance is to the downside. If this happens, the pair will likely retest the key support at 14.0915.
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