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USD/ZAR Stays Below 15.00 As Annual Inflation Falls Short of Market Forecast

The South African rand is rebounding against its US peer in the middle of the trading week. With a renewed rally in the broader financial markets, investors are pouring back into emerging market currencies. Can the rand maintain support below…

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The South African rand is rebounding against its US peer in the middle of the trading week. With a renewed rally in the broader financial markets, investors are pouring back into emerging market currencies. Can the rand maintain support below the 15.00 mark against the greenback? It might depend on the economic recovery and the market’s appetite for EM currencies.

According to Statistics South Africa, the annual inflation rate fell to 2.9% year-over-year in February, down from 3.2% in January. This was below the median estimate of 3.1%. Although there was a slowdown in price growth, costs for food, health care, and miscellaneous goods remained high.

On a monthly basis, the consumer pride index jumped 0.7% in February, up from 0.3% in the previous month. This fell short of the market forecast of 0.9%. The core inflation rate, which removes volatile food and energy, came in at 2.6%, down from 3.3%.

Producer prices data for February will be released on Thursday, while the central bank will announce its intentions for interest rates. So far, the market is anticipating higher producer prices and the benchmark rate to stay at 3.5%.

Earlier this week, the leading business cycle indicator grew 2.1% in January, up from 0.5% in December. This was the best reading since October, and it represented the eighth monthly increase in the index.

On the coronavirus front, new infections have flatlined, with the seven-day average sitting below 1,200. This is down from the January peak of around 19,000. In total, South Africa has reported 1.54 million cases and a death toll of more than 52,000.

But while South Africa appears to successfully limited the COVID-19 pandemic, there are concerns about a growing number of Ebola cases throughout Africa, particularly in Guinea. Vaccines have been distributed, but logistical issues and a poor health care infrastructure have impacted their efficacy. Should an Ebola outbreak unfold, it could devastate a medical care system already under pressure.

The USD/ZAR currency pair dropped 0.19% to 14.8664, from an opening of 14.9047, at 17:04 GMT on Wednesday. The EUR/ZAR slipped 0.39% to 17.5826, from an opening of 17.6505.


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Author: Andrew Moran

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