USD/ZAR Analysis:
- USD/ZAR[1] continues bearish momentum as SARB keeps rates on hold: Repo Rate remained at 3.5%
- Inflation close to the midpoint of the 3% - 6% target band and commodity prices remain elevated (positive for SA exports)
- Implied policy rate path indicates the possibility of no further repo rate cuts for 2020
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MPC Vote to Maintain Key Repo Rate
The Monetary policy Committee (MPC) voted on Thursday to keep South Africa’s repo rate unchanged. The South African Reserve Bank (SARB) Governor, Lesetja Kganyago announced that the decision had been made with close consideration to the expected economic lift for Q3 and Q4, maintained inflation over the medium term and the fact that elevated commodity prices have contributed to a robust trading environment.
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Analysts were mixed in their expectations between holding or cutting the interest rate and the market seemed to have been similarly undecided ahead of the meeting with price action showing no discernable direction. The chart below shows the immediate move lower for the pair as Kganyago explained that the future implied policy rate path did not project any further cuts for the remainder of 2020 and even allows for a potential rate hike in the second half of 2021. However, should there be any threats to the current outlook that appear through observed economic data, the Reserve Bank stands ready to react appropriately.
USD[4]/ZAR 4 Hour Chart: Highlighting Rate Announcement
Chart prepared by Richard Snow[5], IG
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