USD/ZAR forecast after the weak South African PMI data

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 Jan 5, 2022
  • The USD/ZAR pair came under pressure on Wednesday.
  • It declined even after the weak South African PMI data.
  • We explain why a rebound will likely happen soon.

The USD/ZAR pair declined slightly on Wednesday after the latest PMI numbers from the United States and South Africa. The pair is trading at 15.88, which is a few points below last week’s high of 16.08.

South Africa PMI

Business activity in South Africa remained under pressure in December as the country continued battling the Omicron variant. 

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According to Standard Bank, the country’s PMI declined from 51.7 in November to 48.4 in December. A PMI reading below 50 is usually a sign that an industry is struggling. 

The numbers showed that South Africa’s manufacturers struggled in December as more workers reported positive Covid-19 tests. The PMI also declined because of the ongoing supply chain crisis that is affecting most countries. 

Most importantly, most businesses complained about the current trends on inflation. Data published by the South African producer price index (PPI) rose by almost 10% in November. There is a likelihood that the trend continued rising in December.

Still, these numbers will not deter the South Africa Reserve Bank (SARB) from implementing interest rate hikes this year. Analysts expect about four hikes this year as the bank attempts to deal with the rising inflation trends.

The next major catalyst for the USD/ZAR will be the official jobs numbers that are scheduled for Friday this week. Economists expect the data to show that the American labour market did well in December even as the number of Covid-19 cases rose. 

Precisely, the median estimate is that the economy added more than 400k jobs in December after it added less than 300k in November. They also expect the data to show that wage growth continued rising while the unemployment rate declined to about 4.0% in December. 

USD/ZAR forecast

The four-hour chart shows that the USD/ZAR pair has been under pressure in the past few days. The decline started on Monday when the pair rose to a high of 16.07, which was also the highest level on December 16th.

The pair has also moved to the 25-day and 50-day moving averages while the MACD has started to tilt lower. This decline seems like the formation of the cup section of the cup and handle pattern.

Therefore, the pair will likely resume the bullish trend as bulls attempt to move above the resistance at 16.00. 

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