USD/ZAR Forecast Ahead of South Africa Inflation Data

The USD/ZAR price retreated slightly ahead of the upcoming South African consumer inflation data. It also dipped after the relatively weak economic data from the US that dragged the dollar index. The exchange rate dropped to a low of 16.91, which was sharply lower than this week’s high of 17.13.

South Africa inflation data ahead

The USD to ZAR price declined sharply after the latest economic data from the United States. Data by the Census Bureau showed that new home sales dropped from 585k in June to 511k in July. This decline was worse than the median estimate of 575k. Sales have dropped in the past five months straight. 

Other recent housing numbers have disappointed recently as the Federal Reserve continued hiking interest rates. Building permits, housing starts, pending, and existing home sales all dropped in July. Home prices have also started dropping in the past few months even though they remain at elevated levels.

Meanwhile, data by S&P Global showed that output of the private sector declined sharply in August. The services PMI declined to 44.1 while the manufacturing PMI fell to 51.3.

The USD/ZAR price declined as investors anticipate that the Federal Reserve will likely slow its rate hikes in the near term. Analysts expect that the bank will hike rates by 0.50% in September and then by 0.25% in its final two meetings.

The next key catalyst for the USD to ZAR exchange rate will be the upcoming South African inflation data scheduled for Wednesday. Economists expect the data to show that the headline CPI rose from 1.1% to 1.4% on a month-on-month basis. This will translate to a 7.7% year-on-year increase.

Excluding the volatile food and energy prices, analysts expect the data to show that core CPI rose to 0.6% on a MoM basis and by 4.8% on a YoY basis. These figures will be higher than the target by the South Africa Reserve Bank (SARB). They will come a day after data showed that the country’s unemployment rate dropped to 33.90% in Q2.

USD/ZAR forecast

The four-hour chart shows that the USD/ZAR price has been in a strong bullish trend in the past few days. As it rose, it moved above the important resistance level at 16.91, which was the highest level on August 3. It remains slightly above the 25-day and 50-day moving averages.

Despite the decline, the pair will likely continue rising as bulls target the key resistance level at 17.30. A drop below the support level at 16.80 will invalidate the bullish view.