USD/ZAR exchange rate forecast ahead of SARB decision
- The USD/ZAR exchange rate has dropped by 8.2% from the YTD high.
- South Africa’s consumer inflation surged in October.
- SARB will likely hike interest rates by 0.75% on Thursday.
The USD/ZAR exchange rate dropped to the lowest level since September 1 as the US dollar recoiled. It dropped to a low of 17 even after worrying South African consumer inflation data. Rand has jumped by 8.2% from its lowest level this year.
South Africa inflation
The USD to ZAR exchange continued its sell-off after the latest South African inflation data. According to the statistics agency, the headline consumer price index (CPI) rose from 7.5% in September to 7.6% in October. On a month-on-month basis, inflation rose from 0.1% to 0.4%.
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Core inflation, which excludes the volatile food and energy products, inflation rose from 4.7% to 5.0%. It remained unchanged at 0.5% on a monthly basis.
Meanwhile, additional data by the statistics agency showed that the producer price index (PPI) dropped from 0.7% to 0.4%. It also pulled back from 16.3% to 16.0% on a year-on-year basis.
Therefore, these numbers will likely put pressure on the South African Reserve Bank (SARB). The SARB has been in a tightening cycle in a bid to bring inflation lower. In September, the bank hiked rates by 75 basis points. It pushed the repo rate to 6.25% and the prime rate at 9.75%.
Analysts expect that SARB will deliver another big rate hike on Thursday. Precisely, they expect that the bank will hike by 75 basis points and push the repo rate to 6.25%. It will also point to more rate hikes in the coming months, as we wrote in this article.
The USD/ZAR price pulled back because of the latest Federal Open Market Committee (FOMC) minutes. These minutes showed that the bank will continue hiking interest rates but at a slower pace going forward. Analysts expect that the bank will hike rates by 50 basis points in December.
Therefore, this decline has coincided with the overall decline of the US dollar index. The dollar index has dropped from $115 to $105.
The daily chart shows that the USDZAR forex rate has been in a strong bearish trend. As it dropped, the pair moved below the 25-day and 50-day moving averages. It also managed to move below the important support level at 17.31, which was the highest point on June 14.
The Relative Strength Index (RSI) has also continued falling. Therefore, the pair will likely continue falling as sellers target the key support level at 16.36. This price was the highest point on November 21 last year and May 13.