USD/ZAR analysis: South African rand surge could be epic

The South African rand continued its strong bull run after the encouraging US inflation report. The USD/ZAR exchange rate tumbled to a low of 18.32 on Wednesday, its lowest swing since January 2nd this year. It has crashed by over 5.57% from its highest swing this year.

Encouraging US inflation

The USD to ZAR exchange rate continued its downward trend this week after a series of economic numbers from the US and South Africa.

The most important report came out after the US published encouraging April inflation data. According to the Bureau of Labor Statistics (BLS), the headline Consumer Price Index (CPI) slowed marginally from 0.4% to 0.3%. It softened from 3.5% in March to 3.4% in April.

The same report revealed that the core CPI, which excludes the volatile food and energy prices (CPI) dropped to 0.3% (MoM) and 3.6% (YoY). 

These numbers mean that the country’s inflation is still stubbornly high above the Federal Reserve target. It also means that the Fed may start cutting rates in the third quarter.

Another report showed that the US economy is still struggling. Data by the Commerce Department showed that retail sales slowed from 0.6% in March to 0.0% in April. Core retail sales dropped from 0.9% to 0.2%.

Therefore, the US dollar index plunged to $104.50, its lowest point since April 10th. It also crashed against most emerging market currencies, including those in Asia. 

The USD/ZAR pair also dropped after a series of South African economic numbers. Data released this week revealed that gold and general mining production continued tumbling in May. They dropped by 4.5% and 5.8%, respectively.

Another report showed that the unemployment rate remained at 32.90% in Q1 while retail sales made a marginal improvement in April. These numbers came ahead of the closely-watched general election. 

USD/ZAR technical analysis

USD/ZAR chart by TradingView

The USD to South African rand continued pulling back this week. It has crashed below the key support at 18.4180, its lowest swing on April 9th. That price was the neckline of the double-top pattern at 19.38.

Most notably, the pair is about to form a death cross, which forms when the 50-day and 200-day moving averages make a bearish crossover. Therefore, the outlook for the pair is extremely bearish, with the next point to watch being at 18.10, its lowest swing in November last year.