South African Rand (ZAR) and US Dollar (USD)
The South African Rand (ZAR) is one of the most used currency in South Africa continent. Zimbabwe and Swaziland also uses the South African Rand unofficially due to the instability of their national currencies.
As recent as 1982, the South African Rand (ZAR) was worth more than the US Dollar (USD). Due to the political instability in South Africa, the Rand underwent a depreciation against the US Dollar. In the global financial/ economic crisis that occurred in late 2008, the Rand traded as low as 11 Rand against 1 US Dollar.
The Rand has since rebounded and currently trades at 7.76 Rand against the US Dollar. The corresponds to several factors. For one, there is the sharp rebound in global commodity prices (gold, diamond, platinum and other metals for which South Africa is a major exporter).
Secondly, interest in the South African Rand will continue to pick up, in tandem with the hosting of the football World Cup in South Africa in 2010. There are already reports on the growth in tourist numbers, 1 year before the World Cup starts!
Lastly, the risk appetite of global investors has increased with optimism that the financial crisis which started in 2008 is over. This means an outflow of funds from US Dollar reserve, leading to a consistent depreciation of the US Dollar against major currencies around the world, which includes the South African Rand.
While the Rand has been enjoying a drastic appreciation against the US Dollar in recent months, concerns over the fundamental health of South Africa will continue to weigh in over the long term. South Africa’s poor economic fundamentals (leading to recession, high inflation and a widening account deficit) are likely to weigh on the Rand and there is a serious concern that the end of the World Cup in 2010 will be the start of the Rand depreciation run.
