What is USD/ZAR?
The USD/ZAR forex pair represents the exchange rate between the United States dollar (USD) and the South African rand (ZAR). In this pair, the USD is the base currency, and the ZAR is the quote currency. This means that if the USD/ZAR exchange rate is 18.72, it would take 18.72 South African rands to purchase one US dollar.
The South African rand has a history dating back to 1961, the year it replaced the South African pound. It was introduced after South Africa became a republic, breaking ties with the British Commonwealth. Since then, the South African rand has undergone several changes and redenominations. It is known for its volatility in the forex market, which can make it an attractive option for traders seeking opportunities for speculation.
Nicknamed the “Greenback,” the US dollar is considered the world’s primary reserve currency, held by most central banks and investment institutions. It also acts as legal tender in a few countries, including Ecuador, El Salvador, the Marshall Islands, Micronesia, Palau, Timor-Leste, and Zimbabwe. The dollar's dominance in international trade has significant implications for exchange rates and economic policies around the globe, and it can serve as a benchmark for nations that choose to link or peg their currencies to the dollar's value.
Many countries and central banks hold significant reserves of US dollars as part of their foreign exchange reserves. These reserves are often used to stabilise their own currencies or facilitate international trade.
What affects the price of the USD/ZAR pair?
Actions and monetary policy statements released by the South African Reserve Bank (SARB) and the US Federal Reserve can influence the exchange rate of the pair. Changes in monetary policy, such as interest rate decisions and quantitative easing programmes, can have a direct impact.
South Africa is a major producer of commodities such as gold, platinum, and coal, and therefore changes in commodity prices can impact South Africa's trade balance and, in turn, the ZAR. For example, rising commodity prices can boost South Africa's exports and strengthen the ZAR.
Other factors that can affect the exchange rate include several economic indicators. These indicators include inflation rates, unemployment rates, and Gross Domestic Product (GDP) growth. A higher inflation rate can lead to a decrease in the value of the ZAR as it erodes purchasing power. Similarly, high unemployment rates and slow GDP growth can also negatively impact the exchange rate as they indicate a weaker economy.
What to watch out for when trading USD/ZAR?
Traders of USD/ZAR should watch out for announcements from key influential organisations in both countries. These include:
- South African Reserve Bank (SARB) and US Federal Reserve Interest Rate decisions and monetary announcements
- US and South Africa data on Trade Balance, Unemployment Rate, Consumer Price Index (CPI), and GDP