USD/ZAR Forecast: No End in Sight for the South African Rand Crash

Summary:
• The USD/ZAR price is on track to notch its third weekly gain as the South African rand crash gains steam. What next for the pair?

The USD/ZAR price is on track to notch its third weekly gain as the South African rand crash gains steam. The USD to ZAR exchange rate rose to a high of 17.15, which was the highest point since 2020. It has risen by about 27% from its lowest level in 2021. Other emerging market currencies like the Mexican peso and Turkish lira have also sharply downward.

South African rand crash explained.

The USDZAR price has been in a strong bullish trend in the past few weeks as investors price in more rate hikes by the Fed. However, the case for a more hawkish Federal Reserve rose on Wednesday when the US published strong consumer inflation data. The data showed that US inflation surged to 9.1% in June as the cost of gasoline jumped to the highest level on record.

Therefore, analysts started to upgrade the next action for the Federal Reserve. Before the inflation numbers, most of them expected the Fed to hike interest rates by either 0.50% or 0.75% this month. Some analysts expect that the Fed will go big and hike interest rates by 100 basis points. 

The USD/ZAR pair has risen because the Fed seems more hawkish than the South African Reserve Bank (SARB). SARB has already hiked interest rates several times this year. All this means that the cost to service South Africa’s external debt will continue surging this month.

The next key catalyst for the pair will be the upcoming US producer price index (PPI). Analysts expect the data to show that producer prices dropped slightly to 10.7% in July while the core PPI index dropped to 8.1%.

USD/ZAR price forecast

The four-hour chart shows that the USD to ZAR exchange rate has been in a strong bullish trend in the past few days. The pair has formed an ascending channel pattern that is shown in blue. It is now at the lower side of this channel. It has also risen above the 25-day moving average and is between the Woodie pivot point and the first resistance point.

Therefore, the pair will likely keep rising as investors target the first resistance point at 17.24. A drop below the support at 16.80 will invalidate the bullish view.