The name used to Zar is often heard among foreign investors in Africa. But what is it? It is a way of converting the currency of the United States to that of the African nation. You will get the most of this service when you trade in the USD for the ZAR. But there are other reasons for which you should consider trading in the USD to the FARDC than just price appreciation.
Let us look into these reasons. The first reason for investing in the USD to the FARDC is that you will benefit from currency market liquidity. The most important and effective way to increase your liquidity is by having a Forex broker who has a huge pool of US dollars. The reason for having a huge pool of US dollars is because you can use them as a back-up when you lose your investment in the stock market. In case of the ZAR, there is very less liquidity as the South African rands are not connected to the US.
You will also be able to exchange your local currency for the US dollar in times of emergency. If the currency exchange rate is lower than the dollar on the currency market, then you can buy more US dollars to invest in the south African rands. This will increase your exposure to the global markets and will give you a good return on your investment. It is quite possible that at times, the Forex broker you are using may have access to offshore banks that can offer you even better returns. Thus, the US dollar south African rand exchange rate serves your purpose of diversifying your investments in the global market.
You may also decide to invest in the United States dollars to mitigate the risk of exchange rate fluctuations. There is another reason to purchase US dollars in the south African Rand. If the United States Federal Reserve raises the interest rates, it will also decrease the value of the South African rand. Thus, it makes sense to purchase US dollars if you want to hedge your interest. If you are still invested in the south African Rand, it makes sense to hold the one US dollar you have in order to hedge your interest.
As for the weekly changes in the US dollar (vs. the south African rand), these will mostly impact traders who have been in the business for more than a year or two. The key points are –
There are a few significant changes that we will see in the South African rand following the release of the US Federal Reserve’s semi-official statement on December 12th. The first major change will be that the SAD will lose ground against the rand following its strong performance during the past year. This would mean that the currency would most probably be stronger versus the euro and the dollar. The other major currency pairs that will feel this shock are the GBP and the EUR. However, the changes may not be immediate and we might witness the changes gradually as the week goes on.
What this means is that traders who are hedging their interest rate risks should expect their currencies to depreciate slightly in the coming weeks. This is because the US Federal Reserve will probably raise its interest rates. In addition, the US government will announce some kind of fiscal stimulus package. With these two factors, investors will shift their money to safer investments like the South African Rand so as to hedge their interest rate risks.
The other important economic development that took place last week was the release of the latest quarterly GDP figures. The Economic News Release indicated that the second quarter of 2021 is probably going to be a good one for the US economy. This is because the US government has been very supportive of its recovery programs and has pumped billions of dollars into the market so as to keep the economy running smoothly. If the US economy performs well, it can only help the USD to recover from the current low.