The USD/ZAR price is loitering near its lowest level since January 2020 after the relatively dovish Federal Reserve and the strong South African inflation numbers. It is trading at 14.205, which is 27% below its highest point last year.
Risk-on trade resumes
The South African rand rallied as the risk-on sentiment remained after the Federal Reserve delivered a relatively dovish interest rate decision. In it, the bank decided to leave interest rates at the range of 0% and 0.25%, as analysts at most forex brokers were expecting.
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The bank also left its quantitative easing policies intact, meaning that it will continue accumulating assets at a pace of $120 billion per month. This will likely push its balance sheet to almost $9 trillion in the next few months.
A highly accommodative Federal Reserve usually leads to a weaker US dollar and stronger emerging market currencies. Indeed, the MSCI emerging market currencies index has risen by more than 0.10% today.
The USD/ZAR pair also declined after the relatively strong inflation numbers from South Africa. According to the South African statistics agency, the headline producer price index (PPI) rose from 0.7% in February to 1.3% in April. This month-on-month increase led to an annualised gain of 5.2%, which was the highest level since July 2019. The MoM and YoY increases were both higher than expected.
The PPI data came a week after the agency published relatively strong consumer inflation data. In March, consumer prices rose by 3.2% after rising by 2.9% in February. This increase was relatively lower than expected. Still, the market is pricing in a rate hike later this year.
USD/ZAR technical forecast
In my last article on the South African rand, I pointed to a bearish flag that had been forming for a while. I then predicted that the USD/ZAR would have a bearish breakout. On the four-hour chart, the pair moved to the lower line of the flag, which is the final hurdle towards a major bearish breakout. The downward trend is being supported by the 28-day weighted moving average (WMA). Therefore, I predict that the South African rand will keep as bulls attempt to move it above 14.00 against the US dollar.
