USDZAR: Here’s why the South African rand is up sharply today

USDZAR
USDZAR

The USDZAR pair declined sharply today as traders reacted to weak economic data from South Africa. The pair is trading at 16.6028, which is the lowest it has been since June 11 this year. The South African rand has also gained against other currencies like the British pound and euro.

South Africa inflation falls

The USDZAR pair is reacting to weak inflation data from South Africa. According to the Statistics Bureau of South Africa, the headline consumer price index declined to 2.1% in May as the country continued to reopen its economy. This number was below the 2.2% that traders were expecting and below the May’s level of 3.0%. On a MoM basis, the CPI dropped to -0.6% from the previous -0.5%.

In a statement, the bureau blamed the weak prices to the falling fuel prices. The fuel index declined by 12.2% in April. Still, the index is 25.9% lower than it was in May last year. This decline was partially offset by a 0.3% increase in food and non-alcoholic beverages. The annual inflation rate in the sub sector was 4.4%. Meat prices surged by 5.5% while dairy prices rose by 3.7%. In the meantime, oils and fats rose by 3.6% while alcoholic prices fell.

The biggest challenge for the South African rand is the number of coronavirus cases in South Africa has been in a sharp increase. This has seen the government place new limits on movement on businesses. Meanwhile, data from the country released yesterday showed that mining production declined by 29.8% in May while gold production declined by 20.3%. This is after the two dropped by 50.3% and 60.2% respectively.

South Africa coronavirus cases

The USDZAR pair will also react to the export price index, capacity utilisation, and manufacturing production data from the United States.

USDZAR technical outlook

The USDZAR pair declined to an intraday low of 16.6072. On the daily chart, the price has moved below the 50-day and 100-day exponential moving averages. Also, it is akong the 50% Fibonacci retracement level and a few pips below June’s low of 16.3350. Therefore, it seems like the pair is in a strong downward trend, which means that it will next test the support at 16.3350.

On the flip side, a move above 17.000 will invalidate this trend. This price is along the 100-day EMA and is also an important psychological level. Further, it is slightly below the 38.2% retracement.

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USDZAR technical chart

USDZAR

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