USD/ZAR Forecast for July: Rand Could Crash by 10% Soon

The USD/ZAR price has jumped to the highest point since May as the South African rand suffers a major reversal. The USD to rand pair is trading at 16.25, about 7.27% above the lowest level this month. As the dollar strength continues, it has risen by almost 22% from its lowest point last year.

Why is the South African rand crashing?

The USD to ZAR exchange rate has been in a strong bullish trend as the dollar strength continues. The closely-watched US dollar index has surged to over $105, mostly due to the actions by the Federal Reserve to combat inflation.

In a statement on Wednesday, Jerome Powell said that the bank will continue with its hawkish tone. He also said that the Fed was taking in more recession risks as monetary conditions worsened. Therefore, analysts expect another 0.50% or 0.75% rate hike by the Fed in July. 

The USD/ZAR has also jumped because of the falling consumer and business confidence worldwide. With the fear and greed index falling, many people and businesses have rushed to the safety of the US dollar. The greenback is often seen as the currency of the last resort when conditions worsen.

Further, investors are weighing the hawkish tone of the South Africa Reserve Bank (SARB) compared to that of the Federal Reserve. SARB has delivered several rate hikes this year in its bid to fight inflation. However, recent data showed that the country’s inflation surged to over 6% in May as energy cost remained elevated. 

USD/ZAR forex forecast

The daily chart shows that the USD to rand pair is trading at an important resistance level. It is trading at 16.28, where it struggled, moving above in November and December last year. It also failed to rise above the resistance in May this year. This price also coincides with the 50% Fibonacci retracement level. It has also moved above the 25-day and 50-day moving averages, while the RSI has moved slightly above the neutral level at 50. 

Therefore, there is a possibility that the pair will have a major breakout in July. If this happens, the next key resistance level to watch will be at 18.10, which is also the 78.6% Fibonacci retracement level. It is about 11% higher than the current level. A drop below the support at 15.45 will invalidate the bullish view.