USD/ZAR: H&S forms ahead of SARB decision as inflation spikes

The USD/ZAR exchange rate drifted upwards on Wednesday as traders focused on the latest South African inflation data and Federal Reserve minutes. The pair rose to a high of 18.72, higher than this month’s low of 18.12.

South Africa inflation data

The USD/ZAR pair drifted upwards after the latest South Africa consumer inflation data. According to the statistics agency, the headline Consumer Price Index (CPI) data rose from 0.6% in September to 0.9% in October. This increase translated to a YoY jump of 5.9%, higher than the previous 5.4%. 

These two numbers were higher than the median estimates of 0.5% and 5.5%, respectively. Further data revealed that the core inflation, which excludes the volatile food and energy products, rose from 0.2% to 0.4% on a MoM basis. It slipped from 4.5% to 4.4% on a YoY basis. 

These numbers mean that South Africa’s inflation will remain stickier for longer. While it is still inside the central bank’s target range, there is a likelihood that the bank could decide to hike rates again. Most economists expect the bank will leave rates unchanged at 8.25% in its Thursday’s meeting. In a note, an analyst told Bloomberg:

The USD/ZAR pair rose after the relatively muted Federal Reserve minutes. The minutes showed that the bank was still committed to fighting inflation, which has remained above its 2% target for the month. 

Still, most committee members supported a cautious view of future rate hikes. As a result, most analysts believe that the Fed is done hiking for now. Besides, data published this month revealed that the unemployment rate rose to 3.9% in October while inflation dropped to 3.2%.

USD/ZAR forecast

USD/ZAR chart by TradingView

The daily chart shows that the USD to ZAR exchange rate has come under pressure in the past few days. It has slipped by almost 5% from the highest point this year. Along the way, the pair has formed a head and shoulders pattern, which is a bearish sign.

The pair is also consolidating at the 25-day and 50-day Exponential Moving Averages. It remains below the 100-day EMA. Therefore, the outlook for the USD/ZAR pair is bearish, with the next point to watch being the psychological level at 18.00.