USD/ZAR slowly forming a double-top ahead of Fed, SARB

on Mar 21, 2023
  • The USD/ZAR exchange rate has been in a slow uptrend.
  • It is forming a double-top pattern on the 4H chart.
  • The Fed and the SARB are set to hike interest rates again.

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The USD/ZAR exchange rate continued its comeback as the Federal Reserve and the South Africa Reserve Bank (SARB) prepares for more rate hikes. The USD to South African rand rate jumped to a high of 18.60 on Tuesday even as the US dollar index (DXY) pulled back. It has jumped by over 11% this year.

Federal Reserve and SARB decisions

The biggest forex news of the week will be the interest rate decision by the Federal Reserve. This will be an important decision because US inflation remains at an elevated level. Data published earlier this month showed that inflation remained at 6% in February, which is still above the Fed’s target of 2.0%. Notably, core inflation, which excludes the volatile food and energy prices, rose on a MoM basis.

The Fed is still in a tight spot considering that it is now balancing its fight against inflation with financial stability. Banks in the US and around the world are on edge after the failure of Credit Suisse, the second-biggest Swiss bank. It was acquired by UBS in a $3 billion deal, sharply lower than its peak of over $50 billion.

Therefore, my crystal ball believes that the Fed will hike interest rates by 0.25% in its meeting on Wednesday. That will be a balancing act and a compromise since Jerome Powell pointed to a 0.50% rate hike in his recent testimony.

Meanwhile, SARB is also set to hike interest rates when it meets on March 20. Analysts believe that the bank is now nearing the end of its hiking cycle. As such, they expect it to hike the repurchase rate to 7.25% since inflation remains above 6.9%. SARB has an inflation target of between 3% and 6% while inflation expectations have jumped to 6.3%. 

USD/ZAR technical outlook

USD/ZAR chart by TradingView

The USD to ZAR exchange rate has been in a slow bullish trend in the past few days. It has managed to move above the 25-period and 50-period moving averages. Also, the pair has moved above the middle line of the Bollinger Bands. Oscillators like the Relative Strength Index (RSI) and the Stochastic Oscillator have continued rising.

The pair seems to be forming a double-top pattern whose upper side is at 18.72. Therefore, the pair will likely keep rising ahead of the Fed and SARB interest rate decisions. The next key level to watch will be at 18.74.


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