The ZAR has been making a comeback against the USD in recent days. After the Fed decided to hike interest rates on March 15, 2017, the USD came under significant selling pressure by currency traders and speculators. One of the notable gainers was the ZAR (South African rand). Around March 22, 2017, the ZAR climbed appreciably against the USD, as Wall Street equities plunged, along with global markets. A risk-off approach has been taken to equities markets since the USD weakened, and this is being felt across the Atlantic with the CAC, DAX, FTSE 100 and other major bourses.
On the day, the ZAR appreciated by 0.6% against the USD to reach a level of 12.60. This is fractionally lower than the 20-month high that was reached on Tuesday, 21 March 2017. There is increased pessimism in financial markets, particularly currency markets were exotic currency pairs like the USD/ZAR are traded. President Donald J. Trump is facing an onslaught of pressure from all sides, with every aspect of his campaign rhetoric. This has many investors concerned, and USD weakness is pervasive.
Current Trends with the ZAR among Speculators
Owing to dollar weakness, we are seeing some strong movements with gold. Anglo Gold for one and Harmony Gold are performing strongly. The gold price is expected to retreat after the Fed rate hike on March 15, but it reversed to the upside after the dollar weakened. As the world’s favourite safe-haven financial asset during a risk-off approach to equities markets, gold always performs well when sentiment sours.
There is tremendous nervousness in the markets right now, and commodities are typically in the crosshairs when that happens.
Among the worst performing South African stocks and commodities are Kumba Iron Ore, BHP Billiton, African Rainbow Minerals and others. The current trends among speculators are evident in the futures trading arena. For example, contrarian currency traders engaged in CFD Trading have taken out net short-term call options on the ZAR, helping to propel the rand to new highs. Gold has been a star performer in recent days, and this is naturally welcomed by the SA market which is heavily invested in the mining sector. It should be pointed out however that South Africa’s gold reserves will run out within 30 years, and the country has slipped from first position in the 1970s to 7 today. Mismanagement, rising labour and mining costs and strikes have stripped a once prosperous nation of its most profitable resource.
Emerging Market Currencies Falter as Healthcare Bill Vote Takes Centre Stage
It is interesting to point out that various factors drive the performance of the USD/ZAR pair other than the fundamental strength or weakness of the South African rand. For example, on Friday, 24 March 2017, while the MSCI emerging market stocks index was preparing to end in the black, it stalled. The reason being: The House was voting on President Donald J. Trump’s healthcare bill. The rationale was as follows: if the House passed the bill, it would give much-needed momentum to the USD and Trump’s authority as president. If it failed, the USD would take a hit and traders and investors would lose confidence in the greenback. As such, emerging market currencies, such as the ZAR, would rise. As it turned out, House Speaker Paul Ryan and President Trump pulled the bill, and Obamacare is the law of the land. The ZAR reacted accordingly.
