The South African rand is holding steady against the US dollar after the South African Reserve Bank (SARB) maintained its key rate at 8.25%, as expected. While this conservative stance aligns with market expectations, it reflects ongoing concerns about economic headwinds like port and rail constraints, which hinder growth.
However, a glimmer of hope emerges with the recent decline in consumer inflation for the second consecutive month. This could potentially pave the way for future rate cuts, but the SARB remains cautious, emphasizing the need for a stronger downward trend before considering easing policy.
Meanwhile, the US dollar remains in cautious mode ahead of the crucial Personal Consumption Expenditures (PCE) data release later today. This data serves as the Federal Reserve’s preferred inflation gauge, and its direction could significantly impact global market sentiment and, consequently, the USD.
Technical
The 4-hour chart paints a picture of indecision for the USDZAR pair. Currently hovering around R18.80, the price action is trapped within a trading range, squeezed between the 20-SMA (green line) acting as resistance and the 50-SMA (blue line) providing support.
The recently downward-sloping 20-SMA crossing below the upward-sloping 50-SMA suggests short-term bearish momentum. This is further confirmed by the sharply falling RSI, currently at 38.87, indicating weakening bullish sentiment.
Should the bears hold sway, a push towards the R18.94 resistance could present initial selling opportunities. A successful break above the range would likely attract further selling pressure, bringing the R18.98 and R19.09 support levels into play.
However, the 50.00% Fibonacci retracement level at R18.73 acts as a critical support zone. A decisive break below this level could signal a reversal in momentum, potentially pushing the pair towards the 61.80% retracement level at R18.62.
Summary
The USDZAR pair is poised for potential movement in the short term, with the direction contingent on both the PCE data and technical factors. While the SARB’s cautious stance and lingering economic concerns favour a bearish bias, the declining RSI and potential support levels at the Fibonacci retracement points suggest a possible corrective bounce.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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