The USD/ZAR exchange rate has suffered a sharp reversal this month as the falling US dollar pushed investors out of the greenback. It retreated to a low of 18,65 on Thursday, down by 6.35% from its highest level this month. It is also hovering at its lowest level since April 1. This article explores what to expect with the South African rand.
USD/ZAR dives as the US dollar index falls
The primary reason for the USD/ZAR exchange rate’s retreat this year is that the US dollar index has declined significantly over the past few weeks. After soaring to $110 earlier this year, the greenback dropped below $99 earlier this week.
The dollar sell-off was driven by the rising fear about its role as a safe-haven asset. These fears rose after Donald Trump launched new tariffs against all countries unilaterally. He added tariffs to China of 145% and to South Africa of 25%.
The fears then accelerated after reports emerged that Trump was considering firing Jerome Powell, the head of the Federal Reserve. Such a move would have led to a sharp decline in investor confidence as has happened in other countries like Turkey.
These two fears faded this week after Scott Bessent, the Treasury Secretary, argued that the tariffs between the US and China would eventually be reduced. Trump confirmed that he was ready to make a deal with China, while the Wall Street Journal reported that the administration wanted to slash tariffs to about 50.
These events led to a rebound in the US dollar index on Wednesday. It jumped by 1% to $99.5 from the year-to-date low of $98.
South Africa inflation data
The USD/ZAR exchange rate has plummeted primarily due to the decline in the US dollar. Data released on Wednesday showed that South Africa’s consumer inflation retreated in March this year.
The headline Consumer Price Index (CPI) fell from 0.9% in February to 0.4% in March, leading to an annualized decrease from 3.2% to 2.7%. The report also showed that the coe CPI dropped from 1.1% to 0.5%, leading to a YoY drop of 3.1%.
These numbers indicate that South Africa’s inflation is declining, which may prompt the central bank to implement further rate cuts. The bank has slashed interest rates to 7.5% from last year’s high of 8.50%.
The USD/ZAR has also dropped because of the rising gold price, a notable thing since South Africa is one of the top exporters. Also, investors anticipate less impact from the ongoing crisis between the US and South Africa.
USD/ZAR technical analysis
USD/ZAR chart by TradingView
The daily chart shows that the USD to ZAR exchange rate has pulled back in the past few weeks, falling from a high of 19.92 to the current 18.6. It has dropped and bottomed at the lowsest level in weeks.
The pair moved slightly below the important support level at 19.25, its highest level in January. It has also dropped below the 50-day moving average, while most oscillators have turned downwards.
Therefore, the pair will likely continue falling as US policy confusion remain. If this happens, the next level to watch will be 18, the lowest level on March 18.
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