USD to ZAR – an exotic forex pair with exciting trading potential

The USD/ZAR pair is classified as an exotic forex pair because South Africa is still considered an emerging economy. Exotic pairs are normally quite volatile and thinly traded, but USD/ZAR is actually one of the most popular ones on the list.

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USD to ZAR – an exotic forex pair with exciting trading potential

In the current economic landscape where global trade negotiations rule the markets, currency investors and speculators are always on the lookout for new ways they can adjust their portfolio in order to minimize risk. A great way to achieve this is by means of diversification. Forex traders are particularly fortunate in this regard because they have access to a wide array of financial instruments including the opportunity to trade USD/ZAR.

Therefore, while most people are looking for how to convert their U.S dollars to rand, or vice-versa, traders and speculators are more interested in the exchange rate differential between the two currencies because any price movement can help them turn a substantial profit.  

 

USD/ZAR basics

Considering that South Africa’s economic strength mainly depends on global trade, the rand’s performance is often wildly affected by political turmoil and new developments in the commodity market.

The U.S dollar needs no introduction as it’s the de facto currency of the world and the most valuable and popular one as well. This is why all major forex pairs such as the EUR/USD, GBP/USD and USD/CHF consist of the dollar as one part of the pairing. It is the strongest currency in the world and as a result it takes up most of the trading volume in the forex market.

However, while the USD commands such a high volume of forex transactions and the U.S is the most powerful economy in the world, economies of developing countries such as South Africa are quite unstable and their exchange rates may fluctuate rapidly in either direction throughout the day.

The South African economy is much more established than that of other developing countries, however, which bolsters investors confidence in its currency and therefore the USD/ZAR remains one of the most widely traded exotic currency pairs.

USD to ZAR

What drives the price of USD/ZAR

In general, there can be several reasons why a currency may strengthen or weaken against another and traders need to look closely to any fundamental indicators that can affect the supply and demand between the underlying economies.

Economic data such as the rate of unemployment, imports/exports and the retail sales are particularly important indicators of the future performance of an economy and its currency.

South Africa’s economy that heavily relies on the export of diamonds and precious metals such as gold and platinum is particularly sensitive to any changes in the perceived value of these traded commodities. When these assets are in high demand, their value skyrockets, the country’s exports increase and the economy thrives.

 

USD/ZAR Market outlook    

The USD to ZAR exchange rate has had quite a few highs and lows throughout the year – staying true to the pair’s exotic roots. While the price hit its lowest point in February at 13.25, it has since made substantial recovery recording more than 11% in gains.

The past 6 months were also similarly volatile and while the pair is currently trading comfortably at 14.71, in July, the market witnessed another dramatic drop to the 13.82 price point.

The pair also seems to mirror the market’s confidence in the recent trade war between the U.S and China as recent movements have been quite erratic.

That being said, there is plenty of optimism surrounding the pair according to analysts and we may see further improvement in the next few years.

 

Conclusion

Forex trading holds enormous profit potential for aspiring speculators and the higher volatility the market holds is one the main reasons of why it’s such an attractive market to trade.

Therefore, while volatility entails a certain degree of risk, the higher price movements provide opportunities for higher returns. Exotic pairs such as USD/ZAR are famous for being particularly volatile throughout intraday trading and as such are very enticing markets for traders who can find ways to manage the inherent risk that comes with such wild price movements.

Traders who focus on trading the USD to ZAR exchange rate need to pay close attention to all political and economic developments, monetary policy updates from central banks and especially how the commodity markets are faring before opening a position.

If you are interested in learning more about trading forex and exotic forex pairs such as USD/ZAR, open an account today and learn why CM Trading is the broker of choice for thousands of traders across the world.

Click here to get started!

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