USD/ZAR: What Next for the South African Rand After SARB Decision?

The USD/ZAR price declined slightly in the overnight session as traders reflected on the South Africa Reserve Bank (SARB) interest rate decision. The South African rand is trading at 13.98 against the US dollar while the GBP/ZAR is trading at 19.83. The EUR/ZAR is trading at 17.11 after the SARB decision.

SARB decision: The South African rand is reacting to the latest SARB decision. As widely expected, the central bank left interest rates unchanged at 3.5% for the fifth straight meeting. The bank’s model indicates that it will increase rates by about 0.25% in the next meeting. 

Still, with the unemployment rate at a significant high, there are chances that the central bank will remain accommodative for a while. Furthermore, inflation is still in the bank’s range. In a note, analysts at Bloomberg said:

“The change in balance of risks to the inflation and more hawkish forward-guidance suggest a possible rate increase by year-end. The pace at which rates are increased, though, is likely to remain slow.”

Other emerging market central banks have started tightening. For example, the Brazilian central bank has already hiked interest rates two times. Similarly, the Bank of Russia and Central Bank of Turkey have also hiked rates. 

USD/ZAR technical outlook

The four-hour chart shows that the South African rand has been in a tight range recently. The currency has remained at the current range in the past few weeks. As a result, it is slightly below the 25-day and 15-day exponential moving averages. The pair is also slightly above the important support level at 13.95, which is the lowest level this year. It has also formed a descending triangle pattern, which is usually a bearish sign. 

Therefore, the pair will likely break out lower in the near term. If this happens, the next key level to watch is the support at 13.50. However, a move above the upper side of the triangle at 14.20 will invalidate this trend.

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South African rand chart

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