SARB rate hike, USD/ZAR analysis
- SARB rises 75 basis points – under pressure from global peers and local inflation
- Key USDZAR Technical Levels Assessed Ahead of Fed Rate Decision
- FOMC and US GDP Present Potential Opportunity for USD/ZAR Bearish Reversal
SARB rises 75 bps as global peers scale rate increases
The South African Reserve Bank (SARB) voted to raise local lending rates by 0.75%. The 75 basis point increase was deemed necessary to keep up with the accelerated rise in rate hikes in the developed world as well as to calm the current path of inflation which has exceeded the target range of 3% to 6%.
Distribution of votes:
- 1 vote for 50 basis points
- 3 votes for 75 basis points
- 1 vote for 100 basis points
Earlier this month, the Bank of Canada shocked markets by raising rates by 1% or 100 basis points, which had a ripple effect on market expectations for a potential 1% hike by the Fed next Wednesday. Those impulsive expectations have since set in, now anticipating a 75 basis point hike.
Regarding price stability (inflation), SA CPI exceeded the 6% cap for two consecutive months and led the SARB to revise its inflation forecast to 6.5% for 2022 from 5.9% and 5.7% for 2023 from 5%.
On the growth front, better than expected GDP Q1 data welcomed a positive 2022 GDP revision to 2% from 1.7%, but Q2 GDP is expected to show a contraction of 1.1% due to regular load shedding and the impact of Kwazulu-Natal (KZN) floods.
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USD/ZAR technical levels ahead of FOMC and Q2 GDP (US)
The Rand has been under immense pressure since breaking that level of 16.3220. The reason for this is that we have seen a continued rise in the dollar and at the same time major headwinds have emerged for the ZAR (shedding, flooding and more recently falling metal prices).
USD/ZAR is testing the previous low at 16.8950 as the first test of further bearish momentum. Extended upper wicks around the 17.3057 high suggested higher prices would be hard to come by as the return from overbought territory via the IRS helps add conviction to a developing bearish reversal.
Support stands at 16.8950 followed by the psychological round number of 16.50 and finally the distant 16.3220. There is only one resistance figure based on recent levels and that is 17.3057.
USD/ZAR daily chart
Source: Trading View, prepared by Richard Snow
Key USD/ZAR Risk Events Next Week
Next week, Wednesday, the FOMC will meet to decide on the most appropriate rate hike for the US economy with the potential for a negative surprise a day later with the first release of second quarter GDP. So far, economists are anticipating a dismal 0.9% increase in GDP growth, in contrast to the Atlanta Fed’s GDP Now estimate, which predicts a second successive contraction that would plunge the United States United in a technical recession. If GDP is in line with Fed estimates, USD/ZAR should decline further.
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnotowFX