USD/ZAR forecast: Rand signal as South Africa inflation slips again

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Written on Aug 23, 2023

Reading time 3 minutes

The USD/ZAR price has drifted downwards in the past few weeks.
The South African rand was boosted by the BRICS summit hype.
The most recent data showed that South Africa’s inflation slipped in July.

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The USD/ZAR exchange rate continued falling after another set of encouraging inflation data from South Africa. The pair retreated to a low of 18.63, the lowest level since August 7th of this year. It has retreated by more than 2.9% from the highest level this year.

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South Africa inflation slipped

South Africa has made headlines this year as the country hosts key leaders during the expanded BRICS summit. As I wrote here, a key focus for this meeting is the discomfort about the dollar hegemony.

The South African rand has gained as investors assess how the country will benefit from the summit. Some of the ways are by attracting foreign direct investments (FDI) from countries like Russia and Saudi Arabia.

The USD/ZAR pair retreated after the encouraging South African consumer inflation data. According to the statistics agency, the headline consumer price index (CPI) dropped from 5.4% in June to 4.8% in July, the lowest level in months. This decline was better than the median estimate of 5.0%. It rose from 0.2% to 0.9% MoM, higher than the expected 1.1%.

Core inflation, which the South Africa’s central bank watches closely, dropped from 5.0% in June to 4.7%. Again, this decline was better than the median estimate of 4.9%. Core CPI rose by 0.5% on a MoM basis.

These numbers mean that the actions by the South African central bank to lower inflation are working. Prices could continue falling if the South African rand strength continues.

Looking ahead, the next key catalyst for the USD/ZAR pair will be the upcoming Jackson Hole Summit in Wyoming. Historically, this meeting has been important one for the forex market.

USD/ZAR technical analysis

The USD/ZAR exchange rate has been in a strong bearish trend recently even as the US dollar index rally continued. The pair has retreated and moved below the important support level at 19.14, the highest point on July 6th.

Further, the 50-day and 25-day moving averages have made a bearish crossover while the Relative Strength Index (RSI) and the MACD have continue falling. The pair is forming a rounded top pattern.

Therefore, the outlook for the pair is bearish, with the next level to watch being at 18.12, the lowest point in June. The stop-loss of this trade is at 19.14.