The USD/ZAR exchange rate fell for the second straight day after the strong South Africa inflation report. The pair retreated to 18.80 as traders now refocused on the upcoming Federal Reserve interest rate decision.
FOMC and SARB decisions aheadThe USD to rand pair retreated after South Africa published another red-hot inflation report. According to the statistics agency, the headline Consumer Price Index (CPI) rose from 0.1% in January to 1.0% in February, higher than the median estimate of 0.9%.
This increase translated to an annualised increase of 5.6%, also higher than the expected 6.0%. Further data showed that core inflation rose from 4.6% to 5.0% YoY and from 0.3% to 1.2% MoM during the month.
These numbers mean that the South African Reserve Bank (SARB) has more work to do to lower inflation in the country. For one, the headline figure is nearing the bank’s target of 6.0%.
Therefore, there is a likelihood that the SARB will deliver a hawkish pause when it meets next week. In this, it will likely leave rates unchanged and hint that they will remain higher for longer.
Most analysts were expecting it to start cutting in the next few months. The swap market believes that SARB will deliver its first rate cut in July or September. In a note, an analyst at Capital Economics said:
“As things stand, we now expect the first cut to be delivered in September. Even then, the specter of uncertain fiscal policy will remain and could delay easing further.”
The next important USD/ZAR news will come from the United States where the Federal Reserve will deliver its interest rate decision on Wednesday.
Like SARB, the Fed is expected to be a bit hawkish since US inflation remains at an elevated level. The headline Consumer Price Index (CPI) rose to 3.1% in February while core inflation jumped to 3.8%.
Most economists expect the Fed will start cutting rates later this year. The swap market expects that the first cut will happen either in June or in August.
USD/ZAR technical analysis
The USD to rand pair retreated after the strong South Africa inflation data. On the daily chart, the pair has formed an ascending channel. It is between this channel and is oscillating at the 50-day and 25-day Exponential Moving Averages (EMA).
The MACD indicator has moved below the neutral point. Therefore, the outlook for the pair is bearish, with the next point to watch being at 18.50. This is in line with my last South African rand forecast.
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