Rise of the Rand: Top advice for forex traders cashing-in on currency pairs
COVID-19 mutations, new lockdown restrictions… are just some of the factors leading to global economic uncertainty over the past two months.
Ongoing restrictions on economic activity in many parts of the world continue to disrupt supply and production, leading to inflated prices of raw materials and intermediate goods. South Africa has been hard hit by the ongoing pandemic yet there are bright spots; the Rand is on a run, reaching its highest levels against the US Dollar in years. At the time of publishing the Rand was R14,64 to the USD.
From local market trends to factors affecting the SA economy, Zihaad Israel, CMTrading’s Regional Manager for South Africa, provides advice for all traders.
Q: What are some of the factors affecting the rise of Rand
“The rapid decline in USD/ZAR brought it dangerously near to the 14.0206/13.9522 support region, as well as the current September low of 14.0630, before rebounding again. According to Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, the pair now has the August top at 15.3950 in its sights. The July high of 14.9972 is within sight.
The Rand, like other important currencies, was subjected to periodical shifts in the tone of US monetary policy. The dismal job statistics in the United States also decreased expectations for when the Federal Reserve would begin withdrawing stimulus measures, putting the Rand trade front and center.
Another factor contributing to the Rand’s rise is that the economy performed better than predicted in the first half of the year, growing by 7.5% year-over-year.
Exports and consumer spending will continue to drive growth, according to Nedbank, as the continued global recovery, along with high commodity prices, will support exports. Consumer spending will be supported by low inflation, low-interest rates, and moderate-income growth.
Due to these reasons, the South African Rand gained against the Dollar after a five-month decline, speculating that the Federal Reserve may begin to move faster than planned.
Q: What are some factors that affect currency pairs?
The Rand’s value has been largely determined by the price of gold, South Africa’s primary export. Because the South African economy still relies on gold exports, the rand has been immensely linked with gold prices in recent years. These variables affect the seller’s actions and, again, the amount of money at any given time. The soundness of a country’s economy plays a key role in the exchange rate of its currency. The overall economic situation can change rapidly in response to current events and added information.
Commodities such as crude oil and metals are also linked to currency pairs. An increase in oil prices will likely lead to more inflation compared to other currencies. Another important factor is the international trade balance.
The political environment also influences the general perception of the country and, as a result, the value of tangible money. Forex traders are constantly watching news and politics and events to predict changes in the economic policies of the country’s governments. Changes in government spending and in regulations in certain sectors or businesses are examples.
Q: What effect has COVID-19 had on the Rand/Dollar?
When Covid was at its peak in January 2021, the Rand fell to an extremely low level due to the strength of the Dollar, with investors considering the increase in COVID-19 cases in South Africa and fearing a lengthy lockdown.
Ultimately, we can say that the Rand, as well as other higher-risk emerging market currencies, took a beating. In recent months, however, it has strengthened; South Africa’s vaccine rollout has enabled the country to reduce its lockdown level. This has stimulated the economy leading to a rebound in the Rand.
Q: With such volatility, why should traders consider Forex?
Volatile markets are typically a cue for traders to play it safe but if you have a stomach for the risk you may make significant returns.
Nobody would earn money if markets did not change. Short-term price fluctuations are common. From FX to the FTSE 100, all markets rise and fall on a minute-by-minute basis. Although some volatility is to be expected, many traders choose to avoid trading when conditions are particularly turbulent. This is a smart strategy if your risk appetite is modest but there are strategies to optimize your profits in volatile markets.
The primary goal of trading should be profit. Traders profit when they accurately predict whether a price will rise or fall. In a turbulent market, there are more possibilities to profit since price swings are more severe. With the appropriate methods, you can profit from market volatility whether you’re a novice or a seasoned investor.
Define your risk profile before trading in any markets. Your risk profile will be higher if you can afford to accept some losses. Most traders, especially new ones, want to reduce their risk during turbulent trading situations, but ultimately, it is your choice. When trading in tumultuous markets, the wisest method is to avoid risk, but if you are ready to take certain chances, you may profit from the markets even when trading circumstances are volatile.
Q: How can South Africans trade Forex?
Anyone with an internet connection can participate in pre-trade. However, just because an individual can do something does not mean that he should do it. Serious Forex traders understand that a profitable trading career requires education, dedication, and a sound strategy.
Here are some things to consider if you want to start trading forex in South Africa:
The Forex markets move at a breakneck pace, and if your connection slows or goes down, you’ll lose money. In the blink of an eye, winning transactions may turn into losing trades.
The importance of finding a good Forex broker cannot be overstated. And a Forex trading platform, which is software that your broker will give for you to utilize to trade. Although some brokers have their platforms, most of them accept third-party applications such as MetaTrader 4.
The finest Forex trading platform is the one that makes you feel most at ease.
Advice for Forex traders
Trading in the Forex Market is not for the faint-hearted. There are some crucial factors to keep an eye out for, even for the most seasoned traders. You may have trouble accessing your online trading account when all hell breaks loose, and the markets are in freefall.
As people strive to earn a profit by boosting prices or limiting their losses while prices fall quickly, the unpredictable scenario will lead to increased trading prices. When orders are placed, for this reason, market prices may vary. Be aware that your order may be placed at a different price than the one given, especially if you are utilizing an online trading platform.
Incorrect quotes and price differences may be due to volatile market conditions. Your work will be done, but the price you earn can vary greatly if the market changes rapidly. Limit orders are a fantastic way to use them under these trading conditions. This determines the price you buy or sell, which protects you from fluctuating in price.
You can also check weekly charts over the weekend, when markets are closed, for patterns or issues that could affect your transactions. You will build your best ideas in the quiet light of observation. Learn to wait for your setup and be patient.
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