The USD/ZAR exchange rate has remained in a tight range in the past few weeks even as the US dollar index (DXY) has recovered. The pair has hovered around the psychological point at 19 this month. This price is a few points above the year-to-date low of 18.11. 

The USD/ZAR pair has remained in a consolidation phase recently as investors focus on the performance of the South African economy. Recent data show that the country is doing modestly well as some key sectors stage a slow recovery.

For example, the tourism sector is doing well, with the number of foreigners visiting the country being in an uptrend. Similarly, mining production has made a slow improvement in the past few months. South African stocks are also outperforming their other African peers, with the JSE All Share index trading at ZAR 73,154, higher than last year’s low of ZAR 69,500.

However, not everything is going well in South Africa. Recent data showed that the manufacturing PMI crashed to 43.6 in January from the previous month’s 50.9. Manufacturers continued to complain about demand and the cost of doing business. 

Looking forward, the USD/ZAR pair will react to several catalysts. First, the US will publish the latest consumer inflation data on Tuesday. These numbers will likely show that the headline inflation retreated slightly in January. But it is also expected to remain above the Fed’s target of 2.0%.

These inflation number comes at a time when the US dollar index (DXY) has jumped to $104 from the YTD low of $100. In most cases, the South African rand tends to retreat as the US dollar rises because the country has substantial foreign debts.

The South African rand will also react to the country’s upcoming general election. The president is expected to hold its presidential and parliamentary election this year. In most cases, emerging market currencies tend to react negatively to general elections.

USDZAR chart by TradingView

The daily chart shows that the USD to ZAR exchange rate has drifted upwards in the past few days. The pair has moved slightly above the 50-day and 25-day Exponential Moving Averages (EMA). It has remained above the ascending trendline shown in purple. This level connects the lowest points since December 15th. 

The USD/ZAR pair has remained above the lower side of the Andrews Pitchfork tool. Therefore, the outlook for the pair is bullish, with the initial resistance point to watch being at 19.16. A move above this level will point to more rand weakness, with the initial reference point being at 19.63, its highest point on October 6th.

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