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South African Rand trades near 2021 highs after US inflation data

by Staff writer
22 Apr 2021 at 05:10hrs | Views
The South African Rand continues to be one of the most-watched emerging markets currencies by retail FX CFD traders, as the new COVID-19 cases seem to have plateaued at low levels and economic prospects have improved.

If several months ago there were negative headlines related to B.1.135, the SARS-Cov-2 variant that emerged in the country, were dominating, things seemed to have settled now, a fact confirmed by the price action moves in the FX market.


US inflation rises - not enough to scare the markets

New US inflation figures had been released on April 13th, 2021, rising more than expected, supported by a 9.1% jump in gasoline, as CNBC had also reported. The CPI rose 0.6% in March (MoM) and 2.6% (YoY), beating estimates by a small margin. Although higher inflation is generally supportive for currencies and negative for equities (since the central bank must keep inflation according to its mandate), this piece of news had been Dollar-negative and supported risk assets.

Most of the rise in inflation was attributed to what's called "the base effect" and the market seems to want a consistent rise over several months to have a confirmation for sustained inflation above 2%. If the news had not been positive for the dollar, it was for ZAR, which is now threatening to break to new highs against USD.

ZAR rises against USD

USDZAR is again in the spotlight, as the price action is signaling a potential breakout below key support. Based on popular forex trading tools and price analysis, the order flow continues to be heavily biased towards the sell side, as the USD came under pressure following the latest CPI report. The same goes for EURZAR, which had been steadily declining since August 2020, and thus far, buyers are not showing any sign of strength.

Would the trend continue well into 2021?

Only if the US dollar will weaken or consolidate at the current level, can the global economic recovery pick up steam. However, higher inflation combined with a shift in monetary policy would be something to monitor during the next several months. Technical conditions are favorable for the South African Rand now, but any derailment from the economic forecasts can lead to a countertrend move at any point.

The massive speculation still ongoing in the financial markets could lead to overshooting price action movies, but as long as fundamentals continue to improve and no insolvency risks arise, optimistic expectations can be met or even exceeded.

The bottom line

South Africa continues to be one of the most popular African nations, due to its high growth potential and larger GDP. The pandemic had been a major issue for the country but now that new COVID-19 cases are low, the focus shifts on the recovery. ZAR had been rising for months, creating an environment where additional gains can follow. However, FX traders should remain cautious and monitor any changes in the dominant market narrative.

Source - Byo24News