USD/ZAR price forecast: Rand softens as US inflation renews dollar strength
US CPI inflation data has seen a resurgence in the dollar unwind gains in the rand, despite positive domestic data
Local data has supported the rand
This last week has seen stronger than expected GDP growth (3% year on year) as well as a wider than expected current account surplus (2.1% of GDP) providing some domestic support to the rand. However, the domestic impetus for gains has been overshadowed by risk aversion in the market place once again.
US Inflation supporting the prospect of tighter monetary policy
US inflation and core inflation data measured by the Consumer Price Index (CPI) has traced higher with a reading of 8.6% year on year in May 2022. Core CPI data showed inflation at 6% where 5.9% was expected.
The higher inflation supports the faster pace of monetary tightening in the world’s largest economy and in turn we have seen US Treasury Yields and the Dollar strengthening.
USD/ZAR – price reversal and trend line break
The USD/ZAR has formed a bullish (engulfing) price reversal at the R15.30/$ support level. The reversal is accompanied by a break of trend line resistance and move out of oversold territory by the stochastic oscillator.
The price has moved into close proximity of its initial resistance target at R15.70/$. A break of this level sees R15.85/$ and R16.20 as further resistance targets from the move.
Traders who are long into the move, might consider trailing their stop loss consideration to a close below a one day low.
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