USD/ZAR forecast: here are the South African rand levels to watch

The USD/ZAR exchange rate remained in a consolidation phase on Friday as traders reflected on this week’s SARB decision and the positive government budget surplus report. The pair was trading at 18.93, where it has been in the past few days.

South Africa's budget surplus

The USD/ZAR pair was in the spotlight this week as the South African central bank delivered its second interest rate of the year.

In its meeting, the bank left interest rates unchanged at 8.25%, the highest level in over 15 years. The bank noted that higher rates were necessary to contain inflation is still a thorn in the flesh for the economy.

Also, SARB warned that inflation will get to the mid-point of its target in mid-2025, later than expected. Its inflation target is usually between 3% and 6%. The most recent data showed that the country’s inflation stood at 5.6% in February.

Economists believe that the SARB will start cutting interest rates later this year. The most common view is that it will start slashing after the Fed makes its move. Most analysts expect that the Fed will deliver its first cut in June this year.

The USD/ZAR pair also reacted to Thursday’s budget report. In it, the National Treasury noted that the government had moved into a budget surplus of about $1 billion in February. This was a big surprise since most analysts were expecting it to move to a 7.5 billion rand deficit,

The South African government has been working to reduce its spending in a bid to curb its perennial deficits. It has slashed some costs while boosting its revenue through taxation. Still, analysts believe that the government will continue its deficit spending in the next few years.

High-interest rates are still causing havoc in South Africa by affecting the country’s credit growth. A report published this week showed that loan demand growth by companies slowed to 3.3% in January. Household loan growth retreated to 4.1%. The report said:

USD/ZAR technical analysis

USD/ZAR chart by TradingView

The USD to rand exchange rate has moved sideways in the past few days. It was trading at 18.95 on Friday, where it has been stuck at for a while. The pair has formed an ascending channel and has moved to its middle line.

It is also consolidating at the 50-day Exponential Moving Average. Further, the Relative Strength Index (RSI) and the MACD indicators have moved to their neutral levels. Therefore, the outlook for the pair is neutral for now. It will likely remain in this range in the next few days. The key support and resistance levels to watch will be at 18.5 and 19.50.

The next important data to watch will come out later on Friday when the US will publish the latest PCE inflation report.