USD/ZAR forecast ahead of SARB decision, South Africa elections

The USD/ZAR exchange rate remained in a tight range on Monday ahead of a highly consequential week when the country goes to an election and the Reserve Bank of South Africa (SARB) delivers its interest rate decision. The pair was trading at 18.40, higher than last week’s low of 18.0.

Election and SARB decision

The USD/ZAR pair will be in the spotlight this week as the SARB delivers its interest rate decision. Most analysts expect the bank to leave interest rates unchanged at 8.25% for the seventh straight meeting as inflation remains stubbornly high. 

The most recent economic numbers have shown that inflation remained stubbornly high in April. It slowed to 5.2% in April from the previous 5.3%. It has remained above 5% since October last year and analysts expect that the figure will remain in this range. 

Analysts also expect that the bank will start cutting rates later this year to support an economy that is slowing. The unemployment rate remains above 30% while mining production has continued falling in the past few months. On the positive side, the manufacturing PMI rose to 54 in April.

The USD/ZAR exchange rate will react to the upcoming South African election. Most analysts expect that the African National Congress (ANC) will win the parliamentary election albeit with a lower margin than in the past.

ANC’s trends have been falling. In 2019, the party won 58% of the vote down from 70% in 2004 and polls show that it will receive less than 50% of the vote. If this happens, it means that the ANC will have to form a coalition deal with other small parties. 

The USD/ZAR pair will likely react mildly to this week’s events, including the election since economists don’t expect a lot of change to policy.

USD/ZAR technical analysis

USD/ZAR chart by TradingView

The USD/ZAR pair has come under intense pressure in the past few weeks as the South African rand strength continued. It tumbled to a low of 18 last week, its lowest swing since August last year. It also slipped slightly below the key support at 18.10, its lowest point on 15th November and December 15th.

The pair has moved below the 23.6% Fibonacci Retracement level. It has also formed a death cross pattern, when the 50-day and 200-day Exponential Moving Averages (EMA) cross each other. 

Therefore, the pair’s outlook is mildly bearish, with the next level to watch being the 50% retracement point at 17.16.

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