The USD/ZAR price nosedived on Thursday morning as traders started to price in an interest rate hike by the South African Reserve Bank (SARB). The South African rand rose to 14.31, bringing the total gains this month to more than 1.6%.
What happened: Recent economic data from South Africa have been relatively strong. On Wednesday, Standard Bank said that the country’s PMI increased from 50.3 in March to 53.7. This is a sign that the country’s economy is recovering at a relatively faster clip than earlier expected.
As such, with consumer inflation rising, there is a possibility that the SARB will start tightening, as it had predicted in February this year. It won’t be alone. Earlier today, the Brazil Central Bank hiked interest rate in a bid to tame inflation. It also predicted that it would hike again in June this year. The Turkish and Russian Central Banks have also hiked recently. Therefore, there is a probability that SARB will move in the coming months. Such a decision will be bearish for the USD/ZAR pair.
USD/ZAR technical outlook
The four-hour chart shows that the USD/ZAR pair found a strong resistance at the 14.54 level this week. This was a notable level since it was along the upper side of the ascending channel that is shown in black. Today, the pair moved below this channel and the 25-day moving average. In technical analysis, this is usually a bearish signal especially when the volume is rising.
Therefore, in the near term, the pair may resume the downward trend as bears target the next key support at 14.20. On the flip side, a move above 14.50, which is the middle of the ascending channel will invalidate this prediction.
Please don’t consider this investment advice. Views expressed here are those of the writer and the writer and InvestingCube will not be held liable for any losses.
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