USD/ZAR: Rand Holds Strong in the Face of Fed Dovish Turn

USD/ZAR: Rand is resilient as the Fed turns dovish, uncovering how the pair navigates amidst changing dynamics.

Key Points and Analysis

• The rand gains support as the Fed takes a dovish turn.
• Focus on the SARB Quarterly Bulletin and US retail sales.
• USD/ZAR shows signs of a rising wedge breakout but awaits confirmation.

The South African rand seeks to build on its recent gains following the Federal Reserve’s decision to raise its rate cut forecast 2024 by an additional 25 basis points. While the market anticipated a rate hold, the Fed Risk assets, including most Emerging Market (EM) currencies, welcomed Chair Jerome Powell’s dovish remarks. Powell cited slowing GDP, softening inflation, and a normalizing labor market as key factors. In the upcoming period, the focus will turn to the timing and extent of forthcoming rate cuts. The Fed envisions a reduction of -75 basis points in 2024, whereas current money market pricing indicates a potential decrease of -150 basis points.

USD/ZAR: Rand Holds Strong in the Face of Fed Dovish Turn

From a South African perspective, inflation data took a backseat yesterday, but the figures favor the South African Reserve Bank (SARB). Despite a negative month-on-month (MoM) print and a year-on-year (YoY) miss, the data indicates a return to a downward inflation trend after recent upside surprises.

Today’s USD/ZAR movements will be influenced by the SARB’s Quarterly Bulletin, SA PPI, and US retail sales, with the latter carrying the most weight. Jobless claims, particularly initial jobless claims, will be closely watched. The Bank of England (BoE) and European Central Bank (ECB) announcing their rate decisions may cause heightened volatility in GBP/ZAR and EUR/ZAR. If they align with the Fed’s dovish stance, the rand may gain additional support against these currency pairs.

Technical Analysis of USD/ZAR

The USD/ZAR has broken below the rising wedge pattern, but confirmation is pending. We await a confirmed close below the 200-day moving average, which could expose the psychological handle of 18.5000 and potentially lead to a retest of the long-term trendline support level. The current candle features a long lower wick; the pair may see a higher pullback if it closes this way.

Resistance Levels

• 19.0000
• 18.7759
• 50-day moving average

Support Levels

• 200-day moving average
• 18.5000
• Trendline support

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