The USD/ZAR exchange rate wavered after the Federal Reserve slashed interest rates for the first time this year. It was trading at 17.4280 up from the year-to-date low of 17.28. It remains down by nearly 13% from the YTD high.
Federal Reserve interest rate decision
The USD/ZAR exchange rate rose slightly after the Federal Reserve delivered its first interest rate cut of the year as most analysts were expecting. It slashed them by 0.25% to between 4.0% and 4.25%.
The bank’s dot plot showed that most officials expect the bank to slash interest rates in the remaining two meetings. If this happens, the bank will cut rates by 50 basis points.
Analysts expect the bank to deliver two interest rates at least two times in the first two meetings of next year. In a note, those at ING noted that the bank would slash rates in January and March and then pause.
Morgan Stanley, on the other hand, expects more cuts in 2026 as Donald Trump will replace Jerome Powell as the Federal Reserve chair with someone willing to deliver more cuts. Indeed, Stephen Moran, who became a Fed governor this week, slashed rates by 0.50%. A Bloomberg analyst said:
“The Fed delivered a 25-basis-point insurance cut, but the updated dot plot underscored divisions on the committee as it projected more rate cuts while upgrading growth and employment projections. It appears the Fed’s reaction function has shifted in a more dovish direction.”
SARB interest rate decision
The other notable catalyst for the USD/ZAR exchange rate will be the upcoming interest rate decision by the South African Reserve Bank (SARB).
The interest rate decision comes a day after the South African statistics agency published encouraging consumer inflation data.
This report showed that the headline Consumer Price Index (CPI) rose 3.3% in August after rising by 3.5% in the previous month. The report was better than the expected 3.6%.
Most notably, the CPI retreated by minus 0.1% from the previous expansion of 0.9%. Also, core inflation, which excludes the volatile food and energy prices, moved from 3% to 3.1%.
Another report showed that the country’s retail sales rose from 1.7% to 5.6% on a YoY basis. They jumped from minus 0.1% to 2.1%, respectively.
Economists now expect that the central bank will cut interest rates by 0.25% to 6.75%. The prime overdraft is expected to move to 10.25%.
USD/ZAR technical analysis
The daily timeframe chart shows that the USD/ZAR exchange rate has been in a downward trajectory as the US Dollar Index crashed. It dropped from a high of 18.35 in August to a low of 17.20 this week
The pair rebounded recently and retested the important resistance level at 17.45, the neckline of the head-and-shoulders chart pattern. A break-and-retest pattern is one of the most bearish patterns in technical analysis.
The pair remains below the 50-day and 100-day Exponential Moving Averages (EMA). Therefore, the pair will likely resume the downward trend, and possibly retest the support at 17.00 after the SARB interest rate decision.
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