The USD/ZAR is tilting lower after yesterday’s US consumer inflation numbers and the strong South African mining data. The South African rand is trading at 14.5100, which is slightly above the year-to-date low of 14.40.
What happened: Yesterday, the US Labour Department published the relatively strong US consumer price index numbers. The data showed that core CPI rose from 1.3% to 1.5% while the headline CPI rose to 2.6%. This was the highest it has been since 2018 and was mostly because of the higher gas prices.
Therefore, in response to the data, the US dollar declined against most developed country currencies like the euro and sterling. It then fell against emerging market currencies like the South African rand.
The USD/ZAR pair also dropped after the relatively strong South African mining data. In total, mining production rose by 0.8% in February after falling by 8.4% in the previous month. Gold production, on the other hand, declined by 8.7% year-on-year.
Today, the USD/ZAR price will react to the latest South African retail sales numbers. However, there is a risk that the country’s economy will lag for longer as it halted the Johnson & Johnson vaccine.
The daily chart shows that the USD/ZAR pair has formed a rectangle pattern in the past few weeks. The support and resistance levels of this pattern are at 14.40 and 15.60. It has also moved below the short and medium-term moving averages. Most importantly, it is approaching the lower side of the rectangle pattern.
Therefore, in my view, the stock will likely break out lower, with the next key target being at 14.00. However, there is a possibility that the pair will start rising as bulls target the upper side of the channel.
