The USD/ZAR exchange rate remained at a tight range on Monday as investors focused on key economic numbers from the United States and South Africa. The pair was trading at 18.62, a few points above the year-to-date low of 18.12.
South Africa and US economic dataThe USD to ZAR exchange rate held steady after another series of strong South African economic numbers. According to the SA Reserve Bank (SARB), foreign reserves jumped from $61.72 billion in November to $62.52 billion in December, a record high. Net FX reserves rose to $56.90 billion.
Foreign reserves play an important part in an economy since they can be used to intervene in the forex market. South Africa’s reserves have helped to cushion the rand as other emerging market currencies have tumbled.
South Africa also released encouraging manufacturing PMI data. According to Standard Bank, the manufacturing PMI rose from 48.2 in November to 50.9 in December. A PMI figure of 50 and above is a sign that a sector is expanding.
The USD/ZAR price also reacted to last week’s US non-farm payrolls (NFP) data. According to the Bureau of Labor Statistics (BLS), the economy added over 200k jobs while the unemployment rate remained stuck at 3.7%. Wage growth accelerated in December even as full-time employment dived.
Looking ahead, the US and South Africa will publish several important economic numbers. SA will publish the latest industrial production report on Thursday. This is another important report that shows the health of an economy.
The US, on the other hand, will release the closely-watched inflation report. Economists polled by Reuters expect the data to show that the headline CPI rose from 0.1% in November to 0.2% in December. This translated to a year-on-year increase of 3.2%. Core inflation is expected to come in at 3.8%, the lowest level since 2022.
USD/ZAR technical analysis
The daily chart shows that the USD to South African rand has moved sideways in the past few weeks. It has retreated by 6.67% from its highest point in 2023. The pair is consolidating at the 50-day and 25-day Exponential Moving Averages (EMA).
Most importantly, it has formed a head and shoulders pattern, which is a popular bearish sign. Therefore, the outlook for the pair in 2024 is bearish, especially if the Fed starts cutting interest rates.
The initial target for the pair is at 18.12, the lowest swing in November and December. A break below that level will bring the next key support at 17.40 into view. This price was the lowest swing on July 27th. In the flip side, the key levels to watch will be at 19.63 and 19.91, the lowest swings in October and June, respectively.
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