The USD/ZAR is falling as investors start pricing-in an interest rate hike by the South African Central Bank (SARB). The South African rand is trading at 14.67 against the US dollar.
What happened: In its previous interest rate decision, the South African Reserve Bank hinted that it will hike interest rates later this year. Now, with some emerging market central banks raising rates, there is a possibility that it too will follow suit.
Yesterday, the Brazilian central bank surprised the market by raising rates from 2.0% to 2.75%. Analysts were waiting for the bank to hike to 2.50%. On the same day, the Turkish Central Bank surprised with a hike from 17.0% to 19.0%.
Therefore, with inflation rising, there is a likelihood that the SARB will hike faster than expected even as the unemployment rate remains high. A higher interest rate at a time when the Fed has pledged it won’t hike would be a good thing for the South African rand.
On the four-hour chart, we see that the USDZAR pair has dropped from the year-to-date high of 15.57 to 14.60. This is a 6.20% decline. It has formed what seems like an inverted V pattern and is below the 25-day moving average.
Therefore, in my view, the pair will keep falling as bears target the next key support at 14.50. However, a move above 14.80 will invalidate this prediction and will open the possibility of the price rising to 15.00.
