USD/ZAR forecast as South African rand rally gains steam ahead of Fed, SARB

The USD/ZAR exchange rate continued its strong downward trend, reaching its lowest level since June 2022. It has dropped in the last eleven consecutive weeks as the South African rand surge gained steam. It is down by over 20% from its highest level in April last year.

USD/ZAR crashes amid the US dollar sell-off 

The USD/ZAR exchange rate continued its strong downward trend this week as the US dollar index (DXY) plunged to the lowest level in years. The dollar index, which tracks the performance of the greenback against other currencies, dropped to a lot of $96, much lower than other currencies.

Its crash intensified after Donald Trump said that he was comfortable with the ongoing sell-off, a view that he has maintained for years. Trump believes that a weaker US dollar benefits the country's exporters by making their products cheaper abroad. He has also long-argued that other countries were taking advantage of the United States by devaluing their currencies.

The dollar sell-off intensified as the odds of a government shutdown continued rising on Kalshi and Polymarket platforms. Democrats have warned that a shutdown will happen because of the ongoing crisis on ICE and the Border Patrol.

Looking ahead, the next key catalyst for the USD/ZAR pair will be the upcoming Federal Reserve interest rate decision, which will happen later today. Economists polled by Reuters expect the bank to leave interest rates unchanged between 3.50% and 3.75%.

South African Central Bank decision 

The USD/ZAR exchange rate continued falling because of the ongoing political stability in South Africa as the deal between the ANC and the Democratic Alliance continued.

This deal has led to real change in the country, including significant improvements at Eskom, the country's power utility company. As a result, the frequency of power outages has continued to drop in the past few months.

Credit ratings agencies have taken note and started to boost its outlook. All this has happened at a time when South Africa is in a trade conflict with the United States, a country that buys vast amounts of products.

The USD/ZAR exchange rate has also crashed because of the ongoing gold price surge. Gold is still one of the biggest South African exports 

Looking ahead, the South African Reserve Bank (SARB) will meet and deliver its interest rate decision on Thursday. Economists expect the bank to leave interest rates unchanged at 6.75%. 

The bank slashed interest rates by 0.25% in the last meeting, meaning that it has slashed six times since 2024. Economists at Goldman Sachs and Morgan Stanley believe that the bank has more room to lower its inflation outlook for the year. A top analyst said:

“While we see the case for a rate cut and view the decision as a relatively close call given the recent sharp rand appreciation, we think that the SARB would prefer to err on the side of caution and remain behind the curve in the cutting cycle.”

USD to Rand technical analysis 

The weekly timeframe chart shows that the USD/ZAR exchange rate continued its strong downward trend this week. It crossed the important support level at 17.07, its lowest level in September 2024.

The pair has remained below all moving averages, while the Relative Strength Index (RSI) and the MACD indicators have continued falling this year.

Therefore, the most likely scenario is where the pair continues falling in the near term, with the next key target being at the psychological level at 15.