The rand is trading near R19.70 against the USDOLLAR following a 50bps hike by the South African Reserve Banks. The SARB said that the hike was necessary to combat rising inflation but conceded that further rand weakness can be expected. At one stage yesterday it traded as low as R19.81 to the greenback.
This rate hike will place additional pressure on an already struggling economy, which is projected to grow by only 0.3% this year due to severe electricity shortages. The rand has consistently underperformed among emerging market currencies this year. Given the comments from the SARB, it is likely that this underperformance will persist.
Since November 2021, there has been a total of 475 basis points of interest rate hikes, marking the most aggressive tightening cycle in at least two decades. Generally, interest rate hike strengthens currencies, but the rand's poor response to the recent hike suggests that the market views it as a potential policy mistake, with fiscal issues and economic growth as concerns.
The USDZAR is currently trading in its bullish channel, between the upper blue and red bands, on the daily chart. The longer it stays in this zone, the greater the likelihood that R20 per dollar level will be breached.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.