Will the financial crisis in South Africa have an impact on Forex trading?


The South African economy is of considerable concern to economists. Indeed, a succession of large-scale disturbances has worsened the three main macroeconomic problems in the country: weak economic growth, rising inflation and high unemployment.

Pandemics that started out as health crises but quickly turned into economic problems include the COVID outbreak, for example. Economic activity came to a halt when the city was placed under lockdown.

The dollar reinforced against the rand as investors grew more pessimistic about the outlook for the global economy.

The rand was trading at 16.4150 to the dollar at 1532 GMT, down 0.89% from its previous close. For the first time since October 2020, the rand fell to an all-time high of 16.4700.

Given the economic uncertainties, the dollar index, which measures the greenback against six other currencies, rose almost 0.6%. In this article, we offer information on how the financial crisis in South Africa worsened and how it influenced Forex trading and the market.

The South African rand loses its value

The South African economy has had a rough ride since 2009. Since then, it has never been able to regain its pre-2007/2008 global economic crisis (financial crisis) growth levels. One million people are said to have lost their jobs due to the crisis. There has been a reduction in the demand for raw materials due to changes in the price of these goods, which has had an impact on economic development since 2011.

This trend is also true in today’s reality. The South African rand continues to underperform. If you are an investor in the financial market, you must think that it is it’s time to start trading without putting your money and the main reason behind this is that it takes too much funds to get worthwhile benefits from trading with the South African Rand. Since 2010, growth in South Africa has been declining, averaging only 1.7% between 2011 and 2018. With 2019 upon us, South Africa is now experiencing its third slowdown since 1994. The global slowdown following the global financial crisis, macroeconomic policies, cuts, falling commodity prices, slowing investment due to economic stagnation, deindustrialization, “state capture” (i.e. i.e. systemic corruption) and the insufficient electricity supply and resulting power outages were some of the triggering factors that were taken into consideration.

Annabel Bishop, an analyst at Investec, said in a research note that if power cuts continue in the second half of the year, the brand will face additional market pressure.

According to Bishop, “South Africa’s economic growth is threatened this year by the current severe load shedding regime introduced in stage 6, although it varies sporadically in stage 4”. The outcome for 2022 GDP will depend on how long the country suffers severe blackouts.

The biggest power outages in more than two years were blamed on a strike by state power company Eskom on Thursday and Friday.

The rand is a currency in developing markets. Therefore, a comparison of the company’s performance with that of its competitors could reveal whether it is driven by global or local causes. We can see that the rand has underperformed the JP Morgan Emerging Currency Index throughout this year. You can argue that a mix of global and local forces contributed to the decline. This underperformance compared to other Emerging Markets (ME) may be due to more than just trade tensions and a slowdown in global development; it can also be exacerbated by local factors such as poor economic data or resistance to structural reforms, given the magnitude of the devaluation. As a result, the mark may have broken through a number of resistance levels.

At 10.425%, the yield on the benchmark 2030 government bond fell 1.3 basis points.

How the Financial Crisis Affects Forex Trading

Currency swap markets became more important to non-US banks during the financial crisis as a source of funding for their US dollar financial assets. As a result, borrowing US dollars on the swap market now costs more than borrowing US dollars directly on the financial markets, which is a clear break with the hedged rate parity condition.

Regarding the effect of the financial crisis on Forex trading in South Africa, it should be clarified that investors are changing their strategies in order to gain as much advantage as possible. Meanwhile, during the South African crisis, investors trading with the South African rand are trying to pick the currencies that will give them the biggest difference between currencies. In addition to this, those who want to speculate on Forex market prices can opt for the scalping strategy, which is one of the most common strategies among FX investors.


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