Five factors that influence the strength of the rand
Understanding what moves currencies is essential for making informed financial decisions.
702’s Relebogile Mabotja speaks with Sanisha Packirisamy, Chief Economist at Momentum Investments.
Listen below:
A number of complex local and global factors influence the strength of the rand.
The rand follows a floating exchange rate system, which is why it is so heavily influenced by other factors.
“It is a highly volatile currency.”
- Sanisha Packirisamy, Chief Economist at Momentum Investments
From interest rates to political factors... let’s break down what sways our currency.
Global and Local influence:
The rand is an emerging market currency, which means it is influenced by both local and global factors.
Investor sentiment commodity prices, and economic performance in major markets like the US and China all have an impact on the strength of our currency.
Political and Economic influence:
When there is uncertainty in government policy, allegations of corruption, or instability in our leadership the rand can take a hit.
This is because political instability shakes investor confidence even if global markets are still stable.
Interest Rates and Inflation:
A rise in our interest rate usually strengthens the rand, because foreign investors will chase better returns.
Low and stable inflation will positively impact the strength of the rand.
Commodity Prices and Trade influence:
The prices of key exports from South Africa such as gold, platinum, and coal play a huge role in the strength of the rand.
Higher prices and demand can boost the rand, while drops can weaken it.
Strength of the US dollar:
The US dollar often sways emerging market currencies like the rand.
“It is still the world's reserve currency.”
- Sanisha Packirisamy, Chief Economist at Momentum Investments
When the dollar is strong the rand tends to weaken in comparison.
Scroll up to the audio player for more.