In order to successfully trade the South African Rand (SAR) a trader will have to be aware of the major economic drivers affecting fluctuations in the currency’s valuation. Some of these factors will include the South African Reserve Bank (SARB), the commodities market and carry trade strategies. Keeping a close eye on these factors will help SAR traders execute successful trading strategies.
South African Reserve Bank
The SARB is modeled after the Bank of England and acts as South Africa’s central bank. The central bank’s main mandate is to maintain price stability. This may include intervening in currency markets when the central bank determines it is necessary. The SARB also acts as a creditor as well as a clearing bank in certain situations. The central bank is also a main custodian of South Africa’s gold.
Commodities Markets
Since South Africa is a major commodities exporter the country’s currency is greatly affected by fluctuations in the commodities markets. In particular, the rand maintains a close relationship to platinum and gold since South Africa is a global leader in exporting both of these precious metals. Appreciation in commodities generally applies upward pressure on the SAR.
Carry Trade
Many forex traders take note of the rand’s high rate of interest compared to other currencies. This allows for traders to capture the interest rate differentials by utilizing carry trade strategies. Speculators utilizing a carry trade strategy will provide a certain amount of support for the rand’s market valuations against other currencies.
On the other hand, since South Africa is still a developing and emerging economy, there is significant amounts of political and social unrest which can cause volatile movements in the SAR. Therefore, just like with any currency, traders should practice proper risk management when trading the SAR in the forex market.
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Le Bach Pham has been writing professionally after receiving his Bachelor’s of Art in English Literature from the University of California, San Diego in 2002. He now specializes in writing about legal, business and financial topics. Pham also earned a Paralegal Certificate from the University of San Diego and has experience working in the legal field. He also has experience in writing business plans for clients from various fields, including banking, finance, retail, education, beauty and various other sectors.
