ZARUSD Currency Pair
The rand (ZAR) has been the official currency of South Africa since 1961 when the country first became a republic. As the biggest US trade partner in Africa, in 2018 South Africa traded a dual value of US$14 billion. United States is the third-largest trading partner to South Africa, and a dual bilateral trade agreement has been in existence since 1994.
History Of ZARUSD
In 1789 the US Consulate opened in Cape Town with a promise to develop international trade. The rand was introduced at US$1.40 and held at that rate until the end of 1971, later fluctuating due to the political climate and international pressure. By 1974 the rand was uncoupled from the U.S. dollar (USD) and opened to float from 87 cents. With high inflation and political unrest in the 1980s, the rand diminished in strength and by 1989 traded at R2.50 to the dollar. Despite international pressure during the Apartheid years and a depreciation of strength, the ZARUSD trade agreement was strengthened in 1994 when Apartheid was abolished.
However, the rand continued to weaken due to controversial land reform programmes and other political uncertainty over the past two decades. The ZARUSD currency conversion currently sits at R16.77 to the dollar. The rand fluctuated to an all-time low of R19.293 to the dollar on the 5th of April 2020.
South African exports account for up to 15% of US imports, with the Bilateral Cooperation Forum seeking to further develop relationships in multiple facets of industry in South Africa. The USD is a standard commodity for trade and is held in almost every reserve bank around the world.
South Africa is the 38th largest trading partner with the USA with a total of US$5.5 billion in goods exported in 2018, and an import total of US$8.5billion. The US trade services surplus in that year totalled US$887 million, with exports of US$2.9 billion and imports of US$2.0 billion.
As an emerging market, the South African economy carries less market liquidity compared to other countries with a developed market currency. When paired with the USD, the ZARUSD relationship is referred to as an exotic pair. These exotic currencies sit at a higher cost to trade but also offer wider volatility and room for bigger potential financial rewards. The range of trade for the ZARUSD has strengthened, allowing for speculative trading on both sides of the market. Plus, the market conditions as of July 2020 allow for traders to enter the market at 17.3000, opening doors to different potential trading opportunities whilst the current range holds stable.
ZARUSD Trading Strategies
Two key trading strategies for the ZAR USD trading pair are speculation and hedging. Traders may opt to lock in at the current exchange rate by hedging their currencies in USD and avoiding fluctuations by linking their funds to asset purchases. Traders with a speculative vantage may opt to play the fluctuating currencies daily, allowing the swing of the market to benefit their investments.
Both trading types anticipate the economic situation of both countries by using high impact news as a guideline for when large shifts may occur in the forex market. Consideration of data points from both the US and South African markets allow room for traders to mark their trading expectations and what results may lie ahead.
South Africa And U.S. Relationship
Since 2004, over US$6.2 billion has been invested in South Africa by the USA towards HIV and AIDS response. There are around 600 American businesses operating in South Africa that use the country as a base for their headquarters. A similarity in economic and political viewpoints and a shared common interest in the development of countries within Africa have solidified a relationship between the U.S. and South Africa, allowing for an educational and people-based focus on growth.
The two countries share membership in multiple international organizations, including the United Nations, the International Monetary Fund, World Bank, G-20 and the World Trade Organization. An amended Trade and Investment Framework Agreement was signed in 2012. Both countries endeavour to increase bilateral trade, ultimately optimizing the business environment and encouraging a rise in investment opportunities. A bilateral tax treaty exists between the US and South Africa, removing double taxation.
Past Performance: Past Performance is not an indicator of future results.
South African rand (ZAR)
- Currency Overview: The South African Rand is the official currency of South Africa. The most popular currency pairing to the ZAR is the USD.
- Central Bank: South African Reserve Bank
- Currency Code: ZAR
- History: Officially titled as the currency of South Africa in 1961.
- Economy: Based on private enterprise with state participation. Agriculture is a large proponent and contributes largely to the domestic economy. South Africa is rich in minerals and holds reserves of diamonds, copper, uranium, silver, beryllium, titanium, chromium, manganese and platinum. Byproduct coal is produced mainly for export.
- Current subunits: 1/100 = Cent
- Denominations: Notes, R10, R20, R50, R100, R200. Coins, R1, R2, R5, 5c, 10c, 20c
- Countries using the South African rand: South Africa.
- Currencies pegged to the South African rand: Lesotho Loti, Namibian Dollar and Swazi Lilangeni.
United States dollar (USD)
- Currency Overview: The US dollar is a standard commodity for trade and is held in almost every reserve bank around the world.
- Central Bank: The Federal Reserve System
- Currency Code: USD
- History: Officially titled as the currency of the USA in 1785.
- Economy: As of 2018, the GDP of the USD sat at 20.54 trillion.
- Current subunits: Cent (¢) = 1/100 of a dollar
- Denominations: $1, $2, $5, $10, $20, $50 and $100; Coins: 1¢, 5¢, 10¢, 25¢, 50¢ and $1
- Countries using the U.S dollar: United States, Ecuador, El Salvador, Zimbabwe, Timor-Leste, Micronesia, Palau, the Marshall Islands, Puerto Rico and Guam, Turks and Caicos and the British Virgin Islands. Using the US alongside their own currency in the Bahamas, Barbados, St. Kitts and Nevis, Belize, Costa Rica, Nicaragua, Panama, Myanmar, Cambodia, and Liberia, and a few Caribbean territories.
- Currencies pegged to the USD: Bahrain dinar, Cuban peso, Djibouti franc, Eritrea nafka, Jordan dinar, Lebanon pound, Oman rial, Panama balboa, Qatar riyal, Saudi Arabia riyal, United Arab Emirates dirham, and Venezuela bolivar.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…