South African rand price forecast: fed chair has USD/ZAR treading carefully

USD/ZAR fundamental backdrop

The South African rand has been relatively quiet this week despite some volatile periods scattered throughout. Earlier this morning we saw South African inflation figures (see economic calendar below) surprise to the upside, beating estimates across the board including both core and headline figures respectively. The 7.8% headline number marks the highest issue in 13 years (since 2009). According to Statistics South Africa (Stats SA) the main contributors to the higher print include the below non-durable goods:

• Food
• Fuel
• Drinks
• Electricity
• Medicine

USD/ZAR economic calendar

What this means for the rand is that there is greater potential for the South African Reserve Bank (SARB) to continue the hiking cycle to quell inflationary pressures. From a U.S. dollar perspective, a hawkish slant from Fed Chair Jerome Powell in the upcoming Jackson Hole Economic Symposium could add to a more aggressive SARB as a stronger USD will only heighten inflation concerns. The SARB is in a tricky situation as the current weak economic backdrop will not benefit from higher interest rates particularly from a consumer perspective which has already begun with today’s trade union strike action (national shutdown).

On a more positive note, China’s rate cuts on both short-term (1Y) and long-term (5Y) loan prime rates to promote economic growth and ease mortgage repayment concerns could lead to a stronger rand. South African exports may be positively impacted by this approach from the Chinese government by way of higher commodity prices (iron ore, platinum, coal and gold).

Europeans are heading into the winter months and the demand for coal is only set to grow after sanctions on Russian energy remain in place. We have already seen the rand benefit from the added demand and could help negate/curb significant dollar strength.

Technical analysis

USD/ZAR daily chart

Price action on the USD/ZAR daily chart reflects market hesitancy this week with a rectangular pattern developing around the psychological 17.0000 support zone. The Relative Strength Index (RSI) now approaches overbought territory but has some way to go in terms of RSI trendline resistance (red) which may allow for further rand weakness towards the 17.3074 swing high depending on the outcome at Jackson Hole. This being said, the difference between the USD/ZAR spot price and the 200-SMA (grey) is quite stretched and may see a push lower as mean reversion takes hold.

Resistance levels:

• 17.5002 (23.6% Fibonacci)
• 17.3074

Support levels:

• 17.0000
• 20-day EMA (purple)
• 50-day EMA (blue)
• 16.3575 (38.2% Fibonacci)