The USD/ZAR pair spiked on Tuesday as the dollar strength returned. The pair rose to 14.40, which was 0.75% above the closing price on Monday. It is up by more than 7% from the lowest level this month.
The US dollar bounced back on Tuesday after retreating on Monday as investors waited for Jerome Powell’s testimony to Congress. This will be the first time that the Fed Chair is interviewed after last week’s interest rate decision. In it, the Fed decided to leave its interest rate unchanged between 0% and 0.25%. It also decided to extend its quantitative easing program. The key reason why the US dollar bounced back after the decision is that the bank hinted that it would hike interest rates in 2023.
Emerging market currencies struggled as the US dollar rallied. The closely-watched MSCI International Emerging Market Currency Index fell from $1,752 to $1,730. This is because higher interest rates in the US will make it relatively expensive for emerging market debt.
The USD/ZAR is rising as investors wait for the upcoming Jay Powell testimony before Congress. The Fed chair is expected to address concerns about the change of tone by the Fed. Also, he will likely temper down hopes that the bank was abandoning its easy-money policies.
The South African rand is falling ahead of the latest inflation data from the country. The data is expected to show that the headline consumer price index (CPI) rose from 4.4% in April to 5.2% in May on a year-on-year basis. They see the CPI falling from 0.7% to 0.1% on an MoM basis. In the same period, they see the annualized core CPI rising from 3.0% to 3.2%. These numbers will provide a signal of what the South Africa Reserve Bank (SARB) will do in the coming meetings.
USD/ZAR Long (Buy)
Enter at: 14.411631