The USD/ZAR price bounced back on Wednesday morning as the US dollar made a strong comeback. The pair is trading at 15.55 as the South African rand comes under intense pressure. Still, it is about 3.45% below the highest level this year.
The USDZAR price has risen slightly recently as investors reflect on the ongoing risks of a more hawkish Federal Reserve. All indications are that the Fed will end its quantitative easing policy in March and then implement about 3 to four interest rate hikes this year.
This trend has led to a major bond sell-off in the US, which has led to a sharp increase in bond yields. Bond prices and yield have an inverse relationship. The ten and 30-year bond yields jumped to the highest level in two years.
Therefore, rising interest rates in the United States will put emerging market countries like South Africa under intense pressure. This is simply because most of these countries have dollar bonds that they will need to pay.
Worse, the South African Reserve Bank (SARB) is also expected to keep hiking interest rates in its battle against inflation. The country’s statistics agency will publish the latest inflation today. Analysts expect the data to show that inflation jumped to 3.3% in December.
The four-hour chart shows that the USD/ZAR pair has made some gains in the past few days. It has risen from a low of 15.25 to the current 15.55. The pair has also moved above the key resistance level at 15.50, which was the lowest level on December 27th. A closer look shows that the pair has formed what looks like a bearish flag pattern while the Relative Strength Index (RSI) is pointing higher.
Therefore, there is a likelihood that the South African rand strength will happen soon. If this happens, the next key level to watch will be at 15.26.
This post was last modified on Jan 19, 2022, 04:42 GMT 04:42