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USD/ZAR Rises as SA Reserve Bank (SARB) Pauses After 10 Consecutive Hikes

USD/ZAR Rises as SA Reserve Bank (SARB) Pauses After 10 Consecutive Hikes

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The South African Reserve Bank (SARB) opted for a pause on its hiking cycle with Governor Lesetja Kganyago responding to a question of whether rates have peaked with “a resounding NO”. Despite this Deputy Governor Kuben Naidoo did mention that the Reserve Bank sees itself on a “glide path’” if you will to the Reserve Banks targeted band of inflation.

Food prices was once more cited as a concern despite the fall in inflation numbers this month, something which seems to be a global trend at the moment. Food price inflation forecasts for 2023 remain high but is revised lower in this meeting to 10.3% (from 10.8%), and up slightly to 5.2% in 2024 (from 5.0%).


Source: South African Reserve Bank (SARB)

The Governor said recent changes in terms of lighter loadshedding has resulted in an upward GDP growth revision to 0.4% from 0.3% in May. The Governor was quick to point to the fact that the overall environment continues to change meaning we could see changes on a meeting-to-meeting basis. The Governor also weighed in on the question of restrictive rates and effects on the Economy saying that monetary policy only affects cyclical growth over 6-8 quarters and is not a band aid for ailing growth plaguing economy. Looking ahead GDP growth forecast for 2024 and 2025 is unchanged from the previous meeting, at 1.0% and 1.1%, respectively. According to the Governor the economic conditions appear to have improved in South Africa, yet the longer-term outlook mirrors the uncertainty of the global environment. Prices for commodity exports continue to weaken which do not bode well for the mining sector in particular.


Source: South African Reserve Bank

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Looking ahead and Governor Kganyago stated that as we enter the second half of 2023, near term prospects for the global economy are broadly unchanged, with inflation easing and growth forecasts stable. The longer-term economic outlook however remains clouded by risks to the inflation trajectory, ongoing geopolitical tensions and the effects of climate change. South Africans are making more use of unsecured credit in order to meet basic needs which is a situation that is not sustainable. The recent drop in inflation is a positive yet any inflation risks remain tilted to the upside for now.

The Monetary Policy Committee were quick to reiterate how quickly things may change which makes it nigh impossible to be correct all the time. Having said that moving forward the committee expects to remain vigilant with decisions to be data dependent and sensitive to the balance of risks to the outlook.

Next week brings the next FOMC meeting with the US Federal Reserve expected to hike rates by 25bps despite positive signs on the inflation front. This could weigh on the ZAR in the short term but could also prove to be the peak rate for the Fed which would bode well for the exchange rate moving forward over the medium-longer term.


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The initial market reaction has seen USDZAR rally higher toward the 18.0000 mark which I do expect to hold firm as we have the 200-day MA resting at the 18.0394 handle. Despite appearing ripe for a retracement, any push higher between now and next weeks FOMC meeting may prove short lived as further downside on USDZAR seems to be gathering traction as Fundamentals and Technicals begin to line up.

Immediate support on the downside rests around the 17.7900 handle with a break lower bringing the 17.4000 breakout area back into focus which could prove to be a major stumbling block to further downside. Alternatively, if we are to break higher above the 18.0000 mark and the 200-day MA we could find resistance lurking around the 18.1500 handle before eyes will turn to the 18.5000 which lies just below the 50 day-MA resting at the 18.5400 area.

USD/ZAR Daily Chart, July 20, 2023


Source: TradingView, Prepared by Zain Vawda

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--- Written by Zain Vawda for

Contact and follow Zain on Twitter: @zvawda

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