Forex Trading: All you need to know about trading the rand against the dollar in SA
The South African Rand has had a tumultuous battle against the US dollar, yet recently it is gaining in strength. Today, we highlight the pros and cons of forex trading and more!
Forex Trading can be incredibly lucrative for savvy individuals willing to put in the time and effort to understand one of the most volatile markets out there. From EUR/USD to JPY/USD, each currency pair has unique characteristics and can offer unique opportunities.
One of the most interesting currency pairs on the market is the US dollar against the South African rand (USD/ZAR). In this article, we look at rand’s performance and share advice for trading forex.
South Africa like many nations is reeling from the ongoing pandemic and ailing economy brought on by strict shutdowns. This is having an adverse impact on Rand. South Africa is rolling out its second phase of vaccines, yet cases persist as the country reels from the spread of the Delta variant. Yet over the past year, the Rand has shown tremendous strength in an environment that has been nothing short of disastrous.
At the onset of the pandemic in April 2020, the Rand was trading slightly below R19/USD, yet by June 2021 it was trading at R13.40/USD. At the time of writing the Rand is trading below R15/USD. The Rand’s strength however is tied to the dollar’s weakness.
Despite massive country-wide vaccine rollouts, the US remains beset by COVID19 with many states reporting escalating cases. The USA’s inability to curb its COVID crisis has directly affected the dollar’s strength in many currency pairs.
Top forex questions answered
From financial market trends to factors affecting the Rand, Zihaad Israel, CMTrading’s Regional Manager: South Africa, provides advice for all traders.
Q: USD/ZAR – What are the current trends and market outlook?
The USD/ZAR is a quotation in which the US dollar serves as the base currency and the South African rand serves as the counter currency. South Africa is one of the world’s leading exporters of gold and other minerals; therefore, the economy is inextricably linked to the performance of the mining industry and the precious metals extracted.
As a result, the growth of the South African Rand is linked to an increase in gold demand. The value of the US dollar is affected by fluctuations in global commodity prices, including gold and oil. The higher the gold and oil prices, the lower the value of the US Dollar.
To trade USD/ZAR on the Forex market, one must consider price movements in the commodities market. The USD/ZAR is one of the most volatile pairs in the market. Understand this volatility and basic elements, such as the US and South African macroeconomic data, can result in large profits in the short and medium term.
Q: What is driving the rand’s rally against the dollar?
The rand reached an all-time low of R18.56 against the US dollar in April 2020. It’s currently trading closer at the R14 level for most of the year, and some analysts believe the era of its weakening is over.
The gap in 10-year government bonds between South Africa and the United States reveals that SA is trading at its highest level in 20 years, which might be linked to the country’s downgrade to junk status during this time. When SA faced such extreme disparities in the past, the margin narrowed swiftly, allowing the rand to rise versus the dollar.
Furthermore, while South Africa is not under unusual circumstances, you should know that the country has seen two of the largest Current Account Surpluses in economic history in the last two quarters. This can be attributed in part to the growth of strong global assets.
Q: What are the factors affecting the rand locally?
Political and economic instability in South Africa appears as a major driver of rand volatility. This is the one element that domestic policymakers can directly control – both in terms of how the government develops and conducts economic policy, as well as how it communicates policy choices.
The frequency with which news stories mention government, politics, and uncertainty in the same sentence as South Africa are used to gauge local political uncertainty. This metric displays the number of times political uncertainty in South Africa is mentioned in various news segments in South Africa and throughout the world, indicating the country’s level of political unrest.
Q: What are factors affecting the rand on a global scale?
Global fluctuations such as volatile commodities and the perception of financial market risks create volatility in the rand. In other words, high rand fluctuations are linked to rising prices for South African exports, as well as rising global volatility.
Q: How can brokers be a threat to South Africa’s forex market
Due to the recent influx of unregulated forex brokers into the South African market, it has become important to verify your broker of choice. Unauthorized brokers frequently use misleading promises to entice clients such as unrealistic deposit bonuses or leverage, and these should be avoided at all costs.
As a result, doing the research before selecting a broker has become imperative, and one should always ensure that the broker is regulated by at least one of the top tier authorities, such as the FSCA (South Africa), FCA (UK), and so on.
Discover more opportunities with CMTrading
CMTrading offers more than 150 tradable assets including the top-performing stocks available in the markets. CMTrading clients get access to global brands, exceptional trading conditions and robust safety and security under the auspices of the Financial Sector Conduct Authority (FSCA) in South Africa.
Being a retail brokerage that specializes in CFDs (Contracts for Difference), CMTrading provides clients with unique advantages such as powerful leverage, which allows traders with smaller accounts to gain exposure to much larger positions. This translates to higher profit potential; however, it should be noted that leverage also increases your exposure to downside risk.
While leverage typically adds a certain degree of risk to any investment, CMTrading also offers negative balance protection, thereby guaranteeing that potential losses will never exceed your invested capital. If you are interested in learning more about how you can take advantage of price movements in stocks, currency exchange rates, commodities, or cryptocurrencies, you will find that CMTrading’s unique offering of innovative services and diverse account types are suitable for both beginner and experienced traders.