USD/ZAR price rallies on US GDP and SARB decision
A less hawkish South African Reserve Bank and stronger US GDP data pushes USD/ZAR higher
The rand has moved towards session lows against the dollar at the end of the the trading day, reversing earlier session gains. The move follows both strength in the US dollar as well as a slightly less hawkish South African Reserve Bank (SARB), who opted to increase rates by 25 basis points (0.25%) rather than the 50 basis points (0.5%) many had expected.
SARB MPC meeting forecasts
The Reserve Bank lowered its expectations for growth in 2023 to 1.6% from 1.9% and to 0.7% in 2024 from 1.4% previously (Novembers meeting). The deteriorated outlook follows escalating loadshedding initiatives from power utility Eskom, which are expected to provide significant economic headwinds. This combines with lower key export commodity prices and is expected to further impact investor confidence and investment.
The Bank’s forecast for headline inflation in 2023 is unchanged at 5.4% and is slightly higher at 4.8% for 2024. In 2025 headline inflation is guided to be around 4.5%.
In the US, advance GDP (Gross Domestic Product) data showed quarter on quarter growth of 2.9% in Q4 2022, slightly ahead of consensus which had predicted a quarter on quarter figure of 2.6%. The news saw the greenback moving firmer against a broad basket of currencies as it provided some suggestion that the world’s largest economy was showing some resilience relative to expectations of a sharper slowing of the global economy. The GDP data follows on from recent US labour data which too came in better than expected at the beginning of the month.
The USD/ZAR seems to have found support around the R17.05/$ mark, from which it has started to rise. Gains in the currency pair (dollar strength / rand weakness) suggests R17.40/$ to be the next upside resistance target from the move.
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