Market update: rand unmoved by SARB’s rate hike pause

USD/ZAR fundamental backdrop

The South African rand was in firm focus today without any US interference due to Thanksgiving Day. All eyes were on the South African Reserve Bank (SARB) governor Lesetja Kganyago, who announced that the committee will keep interest rates on hold. Some key comments by governor Kganyago were related to modest growth outlook and long-term uncertainty. Further to that, the South African economy remains sensitive to external shocks and aligns itself with risk on and off sentiment from a global perspective.

USD/ZAR economic calendar

Persistent inflation concerns continue as the South African Reserve Bank's (SARB) primary goal is to realign it within its midpoint target band of between 3% - 6%. Despite October's Consumer Price Index (CPI) uptick to 5.9% from 5.4%, the Monetary Policy Committee (MPC) refrained from advocating an interest rate hike. The SARB interprets this inflationary surge as an isolated incident, acknowledging that one data point doesn't establish a trend.

Major contributors to the elevated inflation include food, fuel, and electricity costs, with the prospect of reduced 'loadshedding' anticipated to bolster economic growth and alleviate inflationary pressures. A recent challenge has emerged from port backlogs, potentially impacting the South African economy and the ZAR.

In summary, the current interest rate level is deemed sufficiently restrictive to curtail future inflation. The trajectory is influenced by major central banks, notably the Federal Reserve, employing a 'wait and see' approach based on data dependency. Although future rate hikes are not ruled out, additional monetary policy may be implemented if higher inflation levels warrant such action.

Technical analysis

The daily USD/ZAR chart below reveals minimal change post-SARB, as it tests the 50-day moving average (yellow). Should we see another close above this level, the 19.0000 psychological level may well come into consideration. With US markets closed, low volumes may be contributing to the lack of volatility as US inflation comes into focus next week.

Resistance levels:

• 19.0000
• 50-day MA (yellow)
• 18.7759

Support levels:

• 200-day MA (blue)
• 18.5000

USD/ZAR daily chart

_{This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.}