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SA Rand Price Analysis: ZAR Gains as CPI (5.9%) Fuels Rate Hike Probability

SA Rand Price Analysis: ZAR Gains as CPI (5.9%) Fuels Rate Hike Probability

Richard Snow, Analyst

South African Rand Analysis:

  • SA Inflation Reaches Upper Bound of 3-6% Target Band
  • South African Rand – The Best Performing Currency vs the Dollar in 2022
  • USD/ZAR approaches key decision point – technical levels identified
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SA Inflation Reaches Upper Bound of 3-6% Target Band

Yesterday, StatsSA released Consumer Price Index (inflation) data which revealed that general prices were almost 6% (5.9%) higher last December than in December of 2020. The South African Reserve Bank (SARB) next meets on the 27th of January where the monetary policy committee will decide on appropriate monetary policy in light of increasing prices and expected rate hikes from developed economies.

SA Rand Price Analysis: ZAR Gains as CPI (5.9%) Fuels Rate Hike Probability

Customize and filter live economic data via our DaliyFX economic calendar

South African Rand – The Best Performing Currency vs the Dollar in 2022

The title of best performing currency vs the greenback comes with a disclaimer. The Rand depreciated against the dollar in November and attempted to consolidate throughout December, meaning that the Rand was due some sort of pullback or return to strength.

Luckily for the ZAR, it was the dollar that experienced a halt and subsequent decline in its trajectory as speculation of an increasingly hawkish Fed - in response to inflation - became largely priced in.

The recent lift in commodity prices has also helped boost the Rand as gold and platinum prices witnessed sizeable moves, while iron ore lags some way behind.

Global Currencies vs The US Dollar

SA Rand Price Analysis: ZAR Gains as CPI (5.9%) Fuels Rate Hike Probability

Source: Reuters Graphics

Key Technical Levels and Analysis (USD/ZAR)

The USD/ZAR pair is rather interesting at the moment with ZAR continuing an impressive run ever since printing the high in November of last year at 16.37. Since then, USD/ZAR made a rather choppy descent which has been accelerated by the latest CPI figure of 5.9% - increasing the odds that the SARB will hike rates next week.

The pair has declined by 2.3%, or just over 3500 pips, since yesterday (on the daily chart, IG) with little sign of slowing down. The most immediate test for USD/ZAR is the descending trendline acting as support. It would not be unusual to see a break of the trendline and a move towards 15.10 and 15.00 looks to be on the cards should that materialize.

A very interesting area of confluence exists around 15.00 and 15.10 as trendline support intersects with the lower bound of the ascending channel and the significant 15.00 psychological level. A bounce off this area could see USD/ZAR continue the longer-term uptrend which began after printing the low in June of last year.

A breakdown of the 15.00 level would see 14.85 come into focus as the nearest level of support.

USD/ZAR Daily Chart

SA Rand Price Analysis: ZAR Gains as CPI (5.9%) Fuels Rate Hike Probability

Source: IG, prepared by Richard Snow

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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