USD/ZAR is on a decline ahead of South Africa’s interest rate decision. According to a survey conducted by Bloomberg, economists expect the monetary policy committee (MPC) to leave the benchmark repo rate unchanged at 3.5%. This will in turn maintain the prime lending rate at 7%. The coronavirus pandemic pushed the South African Reserve Bank (SARB) to cut rates by 300 basis points in 2020.
The central bank’s inflation target is between 3 and 6%. In April, inflation rose to a 14-month high of 4.4% from the prior month’s 3.2%. According to Citibank South Africa’s Gina Schoeman, the strengthening rand will probably offset a rise in food inflation and an increase in costs such as water and electricity. Subsequently, a hike in interest rates will probably begin in Q1’22. Notably, the South African rand has strengthened by over 4.5% against the US dollar since the beginning of the current year.
USD/ZAR is trading lower after the US dollar strengthened against the South African rand in the previous session. At the time of writing, it was down by 0.17% at 14.0783. On a two-hour chart, the currency pair is slightly above the 25 and 50-day exponential moving averages.
I expect USD/ZAR to complete the double-bottom pattern by rising to 14.2000. it is likely to experience resistance at that level while finding support at 14.1000. However, this thesis will be invalidated by a downward movement from its current support level at 14.0500.
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