Is The South African Rand Forging Its Own Path Against The USD

The exotic pair of the U.S. Dollar to South African Rand (USD/ZAR) has not correlated strongly with other USD pairs since this year. In fact, the USD is down 1.3% against the ZAR since the beginning of the year, all the while, the USD index has been super bullish, up 6.1% YTD. While performing better than the GBP, EUR, and other major partners, the USD is still trading just under last November’s high.

With the seasonal tendency of the USD to weaken over the Northern hemisphere’s summer months in combination with the strong trend-bucking Rand, Is it looking unlikely that the USD will take out those highs over the coming months? A main reason for the ZAR’s strength is the interest rate hikes emanating from the South African Reserve Bank (SARB). Just last Thursday the SARB raised rates to 4.75% with a 50 basis point hike, which is the highest single increase South Africa has seen since 2016.

It appears that the announcement was already priced in to the USDZAR since there was little volatility that followed. Several more aggressive rate hikes are expected from the SARB with at least another 50 basis point rise over 2022, and 100 basis points over 2023. USDZAR technical perspective On the charts, we can see the pair is floating just below the high created in November 2021. Just this month we've seen a new range created, to which the Fibonacci tool is anchored.