USD/ZAR forecast as the South African rand makes a comeback

By:
on Aug 11, 2022
  • The USD/ZAR price crashed to the lowest point since June 29th.
  • US published weak consumer and producer inflation data.
  • South Africa’s manufacturing production dropped sharply in June.

The USD/ZAR price dropped to the lowest point since June 29th as the market focused on the relatively weak US consumer inflation data. The pair dropped to a low of 16.12, which was about 6.50% below the highest point on June 14.

Risk-on sentiment

The USD to rand price crashed after the Bureau of Labour Statistics (BLS) published the latest US inflation data.

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The data revealed that the country’s inflation declined modestly in July as the price of gasoline pulled back. During the month, gasoline averaged about $4.20, which was much lower than the previous month’s $5.

Additional data published on Thursday showed that the producer price index (PPI) moved from 1.0% in June to -0.5% in July. It dropped from 11.3% to 9.3% on a year-on-year basis.

Therefore, the dollar index declined as investors predicted that the Federal Reserve will slow its rate increases. The bank has already hiked rates by 225 basis points and hinted that it will continue tightening.

Fed’s officials believe that more tightening is necessary. In an interview with the FT, Mary Daly said that the bank will not be complacent on inflation. As a result, she supports several more hikes this year. The same view was repeated by other Fed officials like Neel Kashkari and Charles Evans.

The USD/ZAR price declined sharply even after some worrying economic data from South Africa. According to the country’s statistics agency, manufacturing production declined from 0.2% in May to -1.5% in June. That decline was worse than the median estimate of -0.5%. It translated to a year-on-year decline of 3.5%.

Still, the South African Reserve Bank (SARB) will likely continue hiking rate hikes. In July, the bank decided to hike interest rates by 0.75%, the biggest increase in years. That increase brought the headline repo rate to 5.5%. It also committed to continuing hiking in a bid to fight the persistent inflation

USD/ZAR forecast

The four-hour chart shows that the USD/ZAR forex price dropped sharply after the relatively weak US inflation data. As it dropped, it managed to move below the important support at 16.31, which was the highest point on May 16. It has moved below the 25-day and 50-day moving averages while the MACD has moved below the neutral level.

Therefore, the pair will likely continue falling as sellers target the next key support level at 15.50. A move above the resistance at 16.50 will invalidate the bearish view.

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