USD/ZAR retreats further from record highs to six-day lows near 19.15

Despite a prevailing negative market outlook and a stronger US Dollar, the South African Rand (ZAR) has exhibited resilience by maintaining its position, supported by expectations of interest rate hikes by the South African Central Bank. The USD/ZAR pair declined to 19.16, reaching its lowest level since the previous Wednesday, before bouncing back to 19.20.

US economic data showed mixed results

The US S&P Global/CIPS Manufacturing Purchasing Managers' Index (PMI) unexpectedly contracted in May, dropping to 48.5, while market expectations were for a reading of 50. Conversely, the Services index surpassed predictions, rising to 55.1 compared to the anticipated 52.6. 

The S&P 500 index (SPX) and the Nasdaq Composite both closed with declines of over 1%. The risk aversion sentiment bolstered the US Dollar, leading to a 0.30% climb in the DXY as it tested weekly highs.

South Africa: inflation data and SARB 

On Wednesday, inflation data will be released in South Africa. Market consensus is for a modest slide in the annual inflation rate from 7.1% to 7.0% and the Core Consumer Price Index to rise from 5.2% to 5.3%. 

The South African Reserve Bank (SARB) will announce its monetary policy decision on Thursday. There is an expectation of a 25 basis points rate hike, raising the interest rate from 7.75% to 8.00%. However, there are also risks of a larger rate increase, which has supported the Rand.

USD/ZAR outlook 

After surging to 19.51 on Friday, the USD/ZAR started to correct lower. The correction found support above 19.15. On the 4-hour chart, the pair remains below a bearish 20-period Simple Moving Average, currently at 19.30. If it rises above this level, it could potentially test 19.50 again.

On the flip side, below Tuesday's low at 19.15, the next support level is seen at 19.10, followed by 18.99 (May 15, 16 low).

Technical levels