USD/ZAR: Rand trades near 14-week peak ahead of SA CPI and SARB decision

Key points

The South African Rand edged up against the US Dollar on Monday, looking to extend the prior week’s gains, ahead of South African CPI inflation report and South African Reserve Bank’s (SARB) policy decision on Wednesday and Thursday respectively.

Last week, the Rand advanced 4% against the greenback on investor expectations that the Federal Reserve is approaching the end of its tightening cycle amid easing inflation.

The SARB is largely expected to leave its benchmark interest rate without change at 8.25% at its July meeting, with a significant minority forecasting another 25 basis point increase.

In May, the South African Reserve Bank raised its main lending rate by 50 basis points to 8.25%, which brought borrowing costs to their highest level since May 2009.

Concerns over the significant Rand depreciation as well as the heightening inflation pressures were the main drivers behind the rate decision.

The SARB also revised up its 2023 inflation forecast to 6.2% from a previously expected annual level of 6%.

The CPI inflation data for June, due out a day before the SARB’s interest rate decision, will also be closely watched by Rand traders.

Rand Merchant Bank expects a slowdown in annual headline inflation to 5.4% in June from 6.3% in May, which would bring inflation back within the central bank’s 3%-6% target range.

“A figure on our forecast would help the view of no hike from the SARB and affirm our forecast that inflation will average 5.9% this year, i.e., within the target band,” Rand Merchant Bank analysts wrote in an investor note.

As of 9:12 GMT on Monday USD/ZAR was edging down 0.28% to trade at 18.0398. Last week, the exotic Forex pair went down as low as 17.8969. The latter has been the pair’s weakest level since April 5th (17.8507).