USDZAR: Q1 GDP 2022 Adds to SARB Pressure

South Africa’s better-than-expected Q1 2022 GDP data on Tuesday added to the pressure for higher interest rates and a 50bp hike from the SARB at the July meeting seems more likely this time, rather than a 25bp hike. South Africa’s GDP rose 1.9% in Q1, following an upwardly revised 1.4% gain in the previous period and well above the market forecast of a 1.2% gain helped by the remaining easing of Covid-19 restrictions. An annual measure, the economy grew by 3%, up from 1.7% growth in the previous period, in line with market forecasts. Statssa says the economy is about the same size as it was before the pandemic.

Improving market sentiment and a softer USD have seen the Rand recover significantly since mid-May along with other emerging market currencies. While the Q2 figures could yet negatively affect the SARB rate outlook, recent data has made the market expect the central bank to be more confident in continuing its cycle of rate hikes. The SARB has raised interest rates 4 times since November, to 4.75% in May, and recently suggested the benchmark is likely to rise to 6.25% in 2023. The bank’s policy has been very supportive of the Rand in the current inflation environment.

South Africa’s annual inflation rate hit a three-month high of 5.9% in April 2022, unchanged from the previous month, according to market forecasts. This marked the 12th month in a row in which annual inflation was higher than the midpoint of the Reserve Bank of South Africa’s target range of between 3% and 6%. On a monthly basis, consumer prices rose 0.6%, slower than the 1% increase in March.

Technical Overview


The USDZAR intraday bias is still on the downside, but the overlapping candles are on the downside, implying a cautious market trend. A break of the 15.4050 support did not make the price drop significantly to immediately pursue the 61.8% FR (15.1589) retracement level, though the decline is still seen as a short-term correction wave on the rise to 14.4417. Gold, which generally provides support to the South African economy, appears to be stuck between inflationary vacillation and bank interest rate policies.

The price is moving in a tough descending channel, below the 200 EMA and Kumo. The histogram of the oscillation indicator confirms the direction of the market which tends to be indecisive. The continuation of the next wave of correction will test 61.8% FR and if it continues will test 78.6% FR. As long as the price stays below the support at 15.4050 which is now the resistance, the prospect of correction will continue. Meanwhile a move back above 15.4050, will see the pair test the minor resistance at 15.6983 and any further move will end the correction and see the price reverse upwards to test 16.3200 tops.

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Ady Phangestu

Market Analyst – HF Educational Office – Indonesia

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