Market Forecast - Sterling Vs. South African Rand 04/11/09
The Rand has weakened dramatically over the last two weeks as a stock market correction sends investors scurrying for the relative safety of the dollar and pound. The Rand leads the "high yielders" currency bracket as it offers an interest rate of 7%, making it a favourite of the so called carry trade.
Investors borrow money in low interest currencies like the dollar and yen, and convert it into Rand to benefit from that yield. It's an attractive trade while the Rand is strengthening because there's capital appreciation as well as the interest rate benefit. But when markets start to wobble traders tend to exit these trades, sending the high yielding currency sharply lower. That's what happened to the Rand in October.
The currency is gaining traction this week though as gold soars to new all time highs above $1,090. The dramatic nature of Monday's price spike leads us to believe that we may have seen the top for now, so buyers of the Rand should strongly consider covering any requirement now in case the exchange rate continues to slide. We are still trading over 10% higher than mid October levels.
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Analysis provided by TorFX
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