The USD/ZAR exchange rate has been in the spotlight this week as market participants watched the South African election, SARB rate decision, and the upcoming US PCE inflation data. It soared to a high of 18.80 on Friday, its highest swing since May 1st. 

The biggest UZD/ZAR news this week was the South African election which will have major changes going forward. The latest data shows that the African National Congress (ANC) will lose the majority and be forced to share power, possibly with the Democratic Alliance.

It is still too early to predict how the new governing coalition will work to change South Africa. In most cases, earlier predictions about a new government tend to fail. For example, the market was heavily confident in Cyril Ramaphosa when he took over from Jacob Zuma in 2018.

At the time, the hope was that he would root out corruption, boost the economy, and handle the Eskom crisis. Instead, South Africa’s unemployment rate has remained above 30% while the Eskom crisis has continued. Therefore, the initial rand sell-off should not be seen as a harbinger of what will happen.

The USD/ZAR exchange rate also rebounded after the latest SARB decision. As was widely expected, the bank left interest unchanged and hinted that inflation would stabilise at 4.5% in the second quarter. 

The bank expects that the economic growth was slow in the first quarter and that it will stabilise in the second half of the year as load shedding frequency slows. It sees the economy growing by 1.2% this year. Altogether, analysts expect that the central bank will hold rates steady and then start cutting them later this year.

The USD/ZAR pair also jumped as the US dollar rebounded to $105. This happened after the Conference Board released a strong consumer confidence report on Tuesday, raising the possibility that the Fed will maintain higher rates for longer.

The pair will next react to the monthly PCE report set for Friday. Economists expect the data to reveal that the headline and core PCE number rose to 2.7% and 2.8%, respectively. A stronger figure than expected will point to a more hawkish Fed and a strong US dollar. 

USDZAR chart by TradingView

The USD/ZAR exchange rate has staged a strong bullish trend in the past few days. This rebound happened after the pair formed a bullish engulfing pattern on May 22nd.

The pair has jumped above the crucial resistance at 18.11, its lowest level in December last year. It has also soared above the 50-day Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI) has moved to 60.

Therefore, the pair will likely rise to 19 as traders watch the election results. However, in the near term, the USD/ZAR will resume the bearish trend as the election fears ease.

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