USD/ZAR: Rand pulls back from 3 1/2-month high ahead of cenbank meetings

Key points

The South African Rand extended a pullback from last week’s 3 1/2-month high against the US Dollar on Monday, as investor focus sets on major central bank policy decisions later in the week.

The Federal Reserve on Wednesday and the European Central Bank on Thursday are both expected to hike benchmark interest rates by 25 basis points. Market players will also be looking for clues both central banks may provide in regard to their September meetings.

“(A) hawkish Fed could see (the dollar/rand exchange rate) snap higher,” Rand Merchant Bank said in a morning briefing.

Last week, the South African Reserve Bank kept its benchmark repo rate intact at a 14-year high of 8.25%, in line with market expectations. It has been the first pause in the central bank’s tightening cycle after 10 successive rate hikes.

Yet, the SARB noted that the policy decision did not represent the end of its rate-hiking cycle or that interest rates had reached a peak. The next policy moves will largely depend on local inflation.

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

Meanwhile, in terms of macro data, South Africa Rand traders will be paying attention to producer price inflation figures for June due out on Thursday.

As of 9:41 GMT on Monday USD/ZAR was edging up 0.24% to trade at 17.9835. Last Thursday, the exotic Forex pair went down as low as 17.7341. The latter has been the pair’s weakest level since April 3rd (17.7211).