The USD/ZAR price declined to the lowest level since October 27 as investors reflected on the political upset of South Africa’s ANC party. The pair ended the week at 15.040, which was about 3% below the highest level this month.
South Africa politics and Fed
South Africa conducted closely-watched municipal elections last week. The elections showed that the ruling ANC party was losing its strength in the country. Precisely, the ruling party won just 46% of the total votes cast, the worst performance since Apartheid ended. This means that it will control a smaller part ogf the country.
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The election came at a time when data shows that the South African economy is emerging from the pandemic at a slower pace than other countries. This performance was partly because of the protests that happened in the second quarter.
The country has also seen relatively higher inflation that is within the target of the South Africa Reserve Bank (SARB). Its unemployment rate has risen to the highest level on record. In fact, the country has one of the worst unemployment rates in the world. The bank is expected to start hiking interest rates in the coming month.
The USD/ZAR also declined sharply after the latest Federal Reserve decision. On Wednesday, the Federal Reserve decided to leave interest rates unchanged. It also decided to turn relatively hawkish by starting to taper its asset purchase program. The US also published strong employment numbers on Friday.
This week, the USD/ZAR will react to the latest US consumer inflation data that will come out on Wednesday. The data is expected to show that the country’s inflation surged to 5.8% last month. As such, it will make the case of more tightening by the Fed.
The pair will also react to the latest mining production data and business confidence data from South Africa.
The four-hour chart shows that the USDZAR pair declined sharply last week. As it dropped, it managed to move below the important support level at 15.246, which was the highest level on September 30. Notably, the pair managed to cross the 25-day and 50-day moving averages while the Relative Strength Index (RSI) declined to the oversold level of 30.
Therefore, the pair will likely keep dropping as bears target the next key support at 14.80. It will then resume the bullish trend in the coming days.
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