Moderately Higher US Inflation Sees USDZAR Ease

USD/ZAR Analysis

• Chinese woes impact rand valuations as South African Reserve Bank keeps rates on hold in July
• ZAR receives slight reprieve as US inflation posts modest rise
• USD/ZAR long-term trend remains unopposed
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Chinese Woes Impact ZAR as the SARB Keeps Rates on Hold

Much of this year’s optimism around emerging markets was based on China’s economic recovery as the economy emerged from targeted lockdown policies to restrict Covid infections. After a promising first quarter, data out of the Asian nation soured quickly. Manufacturing PMI now confirms the sector is not only in decline but is contracting amid a lack of appetite from trading partners stemming from the global growth slowdown.

Tuesday’s trade data confirmed the drop in both imports and exports, with Wednesday’s inflation data revealing that the nation’s consumers are now experiencing deflation. With China an integral trading partner to South Africa, the data has naturally affected the value of the rand. The rand languished near the bottom of a select group of currencies when comparing year-to-date performance to the dollar. However, not all emerging market currencies are the same, as the Brazilian real and Mexican peso have been amongst the strongest performers vs the USD offering favorable interest rate differentials.

YTD Currency Performance vs the US Dollar

Source: Reuters, prepared by Richard Snow

USD/ZAR Long-Term Uptrend Remains Unopposed

The rand maintains its longer-term uptrend – revealed by the ascending channel. After reaching a yearly high of 19.9185, USD/ZAR eased, retracing 38.2% of the major move higher since June 2021. It was at that level where we witnessed a bullish continuation which has continued into this week.

For more insight on how to approach trending markets, take a look at our guide on the topic below:

USD/ZAR Weekly Chart

Source: TradingView, prepared by Richard Snow

USD/ZAR Receives a Slight Reprieve as US Inflation Posts Modest Rise

USD/ZAR has traded in a rather choppy fashion since marking the yearly high in June, characterised by extended periods of both bullish and bearish momentum – complicating the trading outlook.

The recent retest of resistance at 19.1500 fell short, with a close around current levels on the daily chart potentially presenting an ‘evening star’ pattern. A break and hold below 18.7170 would provide greater conviction behind a bearish extension, with little in the way before 18.0440 and the psychological level of 18.0000.

Failure to trade and close below 18.7170 opens the door to a bullish continuation in USD/ZAR, with 19.1500 back in sight and possibly even a retest of the yearly high at 19.9185.

USD/ZAR Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX