USD/ZAR Firmer Ahead of FOMC
USD/ZAR pushed to a thirteen-month high last week as the dollar strengthened against the rand ahead of this week’s Federal Reserve meeting.
The US dollar index, which measures the currency against a basket of peers, pulled back slightly on the week, However, the index remains close to a twenty-year high at 109.50.
This week, traders will be focused on the highly-anticipated Federal Open Markt Committee meeting (FOMC), at which analysts expect the governors to raise rates by at least 0.75%. Moreover, we may even see a 100 basis-point hike if the committee deem it appropriate.
Following the fed, the South African Reserve Bank (SARB) is expected to deliver it’s own super-sized increase on Thursday.
The majority of economists polled last week, predicted a 75 basis-point increase to 6.25% on September 22. Moreover, the market is pricing further hikes this the year, albeit smaller, lifting the terminal rate into the 6.75% – 7.00% range in 2023.
Economists forecast that South African inflation will peak at an average of 14.6% this year. Inflation is forecast to average 8.0% in 2023, slowing to 4.9% in 2024. Standard Bank say the recent fall in energy prices should reduce inflationary pressure, leading to a less-aggressive SARB going forward.
“We expect July to have been the peak in the consumer inflation cycle and there might be a slight moderation from August,” said Standard Bank analyst Elna Moolman. Adding “we reiterate that the inflationary impact is less than may be inferred from looking at the rand.”
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US Dollar to Rand Forecast
The weekly price chart shows USD/ZAR is testing the resistance offered by the August 2020 high at 17.78. A weekly close above that level, clears the path to towards the April 2020 high of 19.34.
The Relative Strength Index (RSI) of 66.65 supports a bullish view. However, the gauge is close to becoming overbought. With that in mind, an extension towards the April 2020 high may encourage profit taking. Nonetheless, the outlook for USD/ZAR remains positive as long as the rate is above the major moving averages. The first of which is the 50-Week Moving Average (WMA) at 15.80 (green line). A weekly close below the 50-WMA, brings the longer-term 200 and 100-WMAs at 15.33 and 15.25, respectively (red and blue) into play.