USD/ZAR prediction ahead of the SARB interest rate decision

By:
on Jul 20, 2022
  • USD/ZAR price has been in a relentless bull run in the past few months.
  • SARB will conclude its monetary policy decision on Thursday.
  • South Africa’s consumer inflation surged by 7.4% in June.

The USD/ZAR price is loitering near its highest level since 2020 ahead of the upcoming rate decision by the South Africa Reserve Bank (SARB). It has risen in the past four straight weeks and is trading at 17.40, which is about 28% above the lowest level in 2021.

SARB interest rate decision

The South African rand continued falling on Wednesday as the market waited for another rate hike by the SARB. Economists polled by Reuters expect that the bank will ramp its tightening strategy on Thursday, Precisely, they see the bank hiking interest rates by 0.50% to 5.25%. 

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If analysts are accurate, this will be the fifth rate hike since it started hiking interest rates in November last year. During this period, it has raised interest rates from 3.50% in a bid to fight inflation. 

Still, data published on Wednesday showed that the country’s inflation surged from 6.5% in May to 7.4% in June this year. This was the highest inflation rate since 2009. It has also risen from the pandemic-era low of 2.2%. 

Excluding the volatile food and energy products, inflation rose from 4.1% to 4.4%. This increase was better than the median estimate of 4.2%. It was also the highest level it has been in years.

Most importantly, South Africa’s inflation has moved above the range set by the SARB. The bank hopes to maintain inflation between 3% and 6%. Therefore, the strong inflation numbers will likely push the SARB to embrace a more hawkish tone.

The USD/ZAR price has also jumped as investors react to the extremely hawkish Federal Reserve. The Fed has already hiked by 150 basis points this year. And analysts expect that it will increase rates by 0.75% next week.

USD/ZAR forecast

USD/ZAR

The USD/ZAR price rose to the highest point since 2020 ahead of the upcoming SARB interest rate decision. The pair rose to a high of 17.27. On the daily chart, the pair has risen above the 25-day and 50-day moving averages.

It has also jumped above the important support level at 16.37, which was the highest level on November 2021. The Relative Strength Index (RSI) has moved above the overbought level. 

Therefore, the USD to rand exchange rate will likely keep rising as bulls target the key resistance at 18. A move below the support at 16.50 will invalidate the bullish view.

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