ZAR Bid on Sticky Inflation and Weaker USD

RAND ANALYSIS & TALKING POINTS

• Will the SARB be forced into another rate hike?
• Federal Reserve path forward will be crucial for SARB and ZAR.
• Local economic woes endure.
• Uncertainty indicative of rangebound ZAR short-term.

USD/ZAR FUNDAMENTAL BACKDROP

The South African rand built on its momentum from the Asian trading session and following on from yesterday’s local inflation beat. South African building permit data for February added to the ZAR positivity increasing by 8.6% YoY (see economic calendar below). The South African Reserve Bank (SARB) now has a tricky task on their hands as inflationary pressures do not some to be slowing despite aggressive monetary policy. Unfortunately for the emerging market nation, the economy cannot withstand sustained tightening which leaves more questions than answers from a central bank perspective. That being said, now that the Federal Reserve could be reaching its peak rate over the next few meetings (or perhaps the next meeting), this would allow the SARB some leeway in maintain rates at their present level.

Later today, jobless data and Fed speak will dominate the economic calendar from a US standpoint and could add some currency volatility to the pair. If Fed speakers continue down their recent hawkish path, there may be some support for USD/ZAR bulls and vice versa.

A few key South African commodity exports have also been trading higher today including gold and iron ore giving additional support for the local currency. It is important to keep in my the persistent political instability and rolling blackouts that hamper local businesses. With the severity of blackout remaining high (with scope for further deterioration), rand upside could be limited.

USD/ZAR ECONOMIC CALENDAR

Source: DailyFX Economic Calendar

TECHNICAL ANALYSIS

USD/ZAR DAILY CHART

Chart prepared by Warren Venketas, IG

Daily USD/ZAR price action shows exhibits a developing triangle pattern moving ever closer to its apex. A retest of the 18.0000 psychological handle could be underway but the Relative Strength Index (RSI) suggests no preference to bulls nor bears at this point. This could be in anticipation of a fundamental catalyst to provide some short-term directional bias.

Resistance levels:

• 18.5000
• 18.2500
• 50-day MA (yellow)

Support levels:

• 18.0000/ Medium-term support
• 17.7000

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