USD/ZAR remains on a downtrend after South Africa’s PPI data on Thursday. The Statistics South Africa Head Office indicated that April’s producer prices rose by 6.7% YoY. Although the figure came in lower than the predicted 6.8%, it is at the highest level since November 2018. On a month-on-month basis, PPI was at 0.7% in April compared to the prior month’s 1.3%.  

Notably, the South African rand is one of the emerging market currencies that has recorded steady performance since the beginning of the coronavirus pandemic. Since April 2020, USD/ZAR has declined by about 29%. The performance has been attributed to the improving conditions in the economic and political fronts.

With reference to its economic environment, the country’s retail sales, as well as the manufacturing and service sectors have improved. Additionally, mining production rose by 21.3% in March after declining by 2.3% in the prior month. The figure was the highest since October 2013. As a result of the strong economic data, the South African Reserve Bank (SARB) took a hawkish tone even as it left its rates unchanged at 3.5%.

At the same time, USD/ZAR is reacting to the lower-than-expected US pending home sales. The data released on Thursday shows that the sales reduced by 4.4% in April MoM. Analysts had expected a reading of 0.8%, which was lower than the previous 1.7%.  

USD/ZAR Technical Outlook

USD/ZAR is trading lower by 0.06% at 13.75. Since the beginning of May, the currency pair has plunged by about 5.40%. On a 4-hour chart, it is trading below the five and ten-week exponential moving averages at an RSI of 33. Earlier in the day, it reached an intraday low of 13.68 at an RSI of 26. Notably, this is its lowest level since January 2019.

Based on the technical indicators, the bearish outlook remains. I expect USD/ZAR to rise to 13.80, which was an important resistance-turn-support level in 2019. However, it is then likely to fall further to a 28-month low of 13.11. A move above 13.80 will invalidate this thesis.

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