USD/ZAR analysis: megaphone pattern points to rand crash to 20

The South African rand strengthened a bit against the US dollar as traders watched the latest South African inflation data and the upcoming tariffs from the United States. The USD/ZAR exchange rate traded at 18.55 on Thursday morning, down from the year-to-date high of 19.25. 

What next for the USD to ZAR after the latest inflation data and after forming a megaphone pattern?

South Africa rising inflation rate

The USD/ZAR exchange rate pulled back slightly after the South African statistics agency released the strong consumer inflation data.

The headline consumer price index rose to 3.2% in January, matching the expected figure from analysts. It rose from 0.1% to 0.5% on a month-on-month basis.

The core CPI, which excludes the volatile food and energy prices, rose 3.5% and 0.2% on a YoY and MoM basis during the month. 

These numbers came as the statistics agency changed how it calculate inflation by adding more products in the basket. 

Experts, including those at the South Africa Reserve Bank, have warned that South Africa’s inflation will keep rising this year. The view is that it will move to the midpoint range of the South central bank. In a recent statement, the central bank governor said:

“It is not a time for us to be complacent. We have to assess this meeting by meeting, guided by the extent of the data and what we see as the outlook in this environment where you have got so much uncertainty.”

The inflation figure came as concerns rise that Donald Trump would focus on South Africa, which he has accused of human right abuses. He has cited a recently-passed law that allows the government to reposses unused land from large owners.

The law, which passed in January, ensures that the government pays the market price for this land. It differed from another law that let the government repossess the land without any compensation.

US tariffs and volatility

The USD/ZAR pair has also reacted to the fear of the upcoming Donald Trump tariffs on imported items. Trump has threatened to pull South Africa from the AGOA deal that allows South Africa and other countries to avoid US tariffs.

Exiting the country from AGOA would affect goods worth about $20 billion annually. Some of these goods are platinum, gold and cars.

The other key USD/ZAR news to watch will be the upcoming US GDP and PCE inflation data. Economists expect the data to show that the American economy expanded by 2.5% in the fourth-quarter, lower than the 3.5% rate in Q3.

The challenge for the US is that Trump’s tariffs will lead to a slowdown in the economy as individuals and companies will slow their spending.

Analysts expect that the Federal Reserve will maintain interest rate steady in the coming meetings as inflation expectations rise.

USD/ZAR technical analysis

The USD to ZAR exchange rate has pulled back in the past few days after hitting the key resistance level at 19.20, the highest swing on June 6. It has pulled back to th 23.6% Fibonacci Retracement level.

The pair has remained slightly above the 50-day and 100-day moving average, a sign that the uptrend is intact. 

Mot notably, the pair has formed a giant megaphone pattern. This pattern is comprised of two falling and diverging trendlines and is one of the most popular bullish continuation signs in the market.

Therefore, the pair will likely continue rising in the next few weeks, with the initial level to watch being at 19.95, the highest point in June last year. A move above that level will raise odds that the USD/ZAR will get to 20 this year. 

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