USD/ZAR Hits 5-Month Low Ahead of SARB

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The South African Reserve Bank (SARB) is meeting on Thursday this week to decide how much it should raise interest rates. Expectations are for a 25 basis point hike to 4.25%, but it is possible that the central bank will hike 50 basis points following the sudden boom in commodities, especially oil, since the start of the Russian-Ukrainian war. The last time the SARB met was in January, before the invasion began and it went up 25 basis points. It has now increased its rates by 25 basis points in each of its last 2 meetings. Prior to Wednesday’s meeting, South Africa will release the February CPI report. Expectations are 5.8% YoY versus 5.7% YoY in January. If the inflation reading is higher than expected, will the SARB rise by more than 25 basis points?

USD/ZAR has been declining since hitting a March 2020 high near 19.3390. The pair pulled back and hit a low on January 8and, 2021 at 13.4058. USD/ZAR then bounced back to the 50% retracement level from that time frame near 16.3724 on November 26th.and2021. This was also the 161.8% Fibonacci extension from the August 20 highand2021 to September 10 lowand2021. The pair has since fallen.

Source: Tradingview, Pierre X

Over a 240-minute time frame, USD/ZAR has been moving lower in an orderly channel since November 26and2021 highs. On Tuesday, the pair broke below the 50% retracement level from the June 4 lowand2021 to November 26and, 2021 highs near 14.4127. Support below is at the lower trendline of the channel near 14.6500 and then the 61.8% Fibonacci retracement level from the recently mentioned time frame near 14.5127. Horizontal resistance is above at 15.0244 then again at 15.1810. Above, resistance is at the top, descending trendline of the channel near 15.3800.

Source: Tradingview, Pierre X

The South African Reserve Bank meets on Thursday and is expected to raise rates by 25 basis points. However, on Wednesday, South Africa will release the CPI. Whether the central bank raises rates by 25 basis points or 50 basis points may depend on the outcome of the CPI report!

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