Against a background of global trade tensions and political turbulence, many investors and traders are looking to diversify their investment portfolio as much as they can. Luckily, when it comes to the forex market, there are a plethora of options one can choose from, ranging from the world’s currency powerhouses, such as USD, GBP and EUR, to some exotics like THB, MXN or ZAR.
As a matter of fact, trading exotic currencies vastly differs from that of majors or minors in view to the level of interest shown in the market. Regardless, they can still provide great opportunities for substantial capital gains.
The USD/ZAR pair is one of the most famous in forex exotic segment. Over the past few years, its rate has been nothing else but volatile, giving savvy investors the opportunity to profit from the rapid market fluctuations.
Do you also want to add this exotic pairing to your portfolio, but are still hesitant? Then this article is for you. Today, we cover the basics of the USD/ZAR pair, check out what factors influence its rate, review its recent performance and take a look at the USD/ZAR forecast for 2020 and beyond to get you prepared for what the future holds.
The basics: everything you need to know about the USD/ZAR pair
The USD/ZAR is the abbreviation for the US dollar to the South African rand currency pair. It represents how many South African Rand — which is the quote currency — are needed to buy one dollar — the base currency.
These pairs make up a smaller share of the total forex market, as they attract fewer investors. Why? The state of the economy and financial markets in developing countries is rather unstable and hard to be predicted, with any changes invariably leading to an abrupt drop or rise in the value of the country’s currency. For that reason, exotic currency pairs usually see lower trading volumes, lacking liquidity and market depth.
However, regardless of its exotic origins, the pairing of the US dollar against the South African rand can be rightly called rather popular.
The prime status of the USD on the global arena boosts up investors’ confidence in the pair. The US dollar is the most traded currency in the international forex market. According to the report of the Bank for International Settlements (BIS) in 2019, the currency accounts for approximately 88% of all foreign exchange transactions.
The South African currency is also widely known as a quite interesting forex performer. The country’s economy is more developed than that of a number of its emerging market counterparts. For that reason, the liquidity of ZAR is considered higher compared to its African peers and more than sufficient for trading purposesю
Factors that influence the USD/ZAR pair
Many factors may have a great impact on the value of the US dollar and the South African rand in relation to each other, as well as other currencies.
One of the key drivers of the pair’s rate is the overall health of the US and South African economies. Particularly important points to look out for are the countries’ GDP growth figures, unemployment rates, retail sales, industrial production, export and import data and inflation. Any developments, both negative and positive, may have a significant influence on the currency pair.
Moreover, the USD/ZAR pair is affected by the interest rate differential between the US Federal Reserve Bank and the South African Central Bank. Lower interest rates tend to have a negative effect on the currency, at least in the short term, and vice-versa.
In addition, ZAR is considered to be a commodity-backed currency. As South Africa is rich in mineral deposits, including diamonds, platinum, gold and iron ore, its currency value depends heavily on the performance of the global commodities market.
Generally, the market movements of this currency pair tend to be extremely volatile, characterised by sharp and rapid price fluctuations. Nonetheless, the USD/ZAR pair can offer great opportunities for experienced investors and traders who are looking for a great diversification tool and want to move away from the forex majors, such as EUR/GBP, GBP/USD, EUR/USD or USD/JPY.
USD/ZAR analysis: the pair's performance through the years
Let's take a look at the dollar to rand trend by checking its historic exchange rate from 2006 to 2019:
Throughout its history, the USD/ZAR pair has proven to be very volatile, with its rates fluctuating substantially amid every economic and political development in either the US or South Africa, or worldwide.
After almost half a decade of flat performance, the pair’s rate fell as low as 6.69 in December 2007, at the beginning of the infamous global financial crisis. However, it immediately gained an upside momentum due to the dollar’s value rebound, with the USD/ZAR rate hitting 10.8 by the end of October 2008.
Another sharp decline happened in February 2009. The prolonged bearish market mood sent the exotic pairing to its lowest rate of the decade – 6.63 – in July 2011.
Over the next five years, the pair had mainly been in the uptrend, reaching its record high of 16.95 in January 2016.
Ever since, the USD/ZAR pair has gone through many ups and downs, trading within the range of 11.59 and 15.88. At the time of writing, on November 22, the pair traded at 14.692.
The USD to ZAR forecast: what to expect in the years ahead
In 2019, both the US dollar and the South African rand have witnessed many rate jumps, reflecting continuous escalations and de-escalations in the global trade and political tensions. Nonetheless, the vast majority of the USD to ZAR forecasts look quite promising. Let us quickly recap some of them.
According to the information provided by Wallet Investor, an online forecasting service, the USD/ZAR pair is anticipated to continue the bearish trend, reaching the rate of 18.967 by mid-November 2024. As such, if you decide to invest in this exotic forex pairing today, your revenue is expected to be around +29.19 per cent in five years.
As for the next year, this is what their USD vs ZAR forecast for 2020 looks like:
In regard to short-term perspectives, according to Trading Economics analyst expectations and global macro models, the dollar vs rand graph is prognosed to see some positive changes, as the pair is predicted to trade at 15.26 by the end of this quarter. Looking forward, they estimate it to rise up to 15.80 in the next 12 months.
Another popular forecasting service, Gov Capital, offers the most positive outlook of all, saying that the USD/ZAR pair is set to skyrocket as high as 94.11 by the mid-November 2024.
According to their one-year US dollar vs South African rand forecast, the pair is anticipated to trade in the uptrend right after experiencing some short-lived drop.
Randforecast.com has come up with its own dollar to rand prediction for the next month. This is how the USD/ZAR pair is expected to trade until Christmas:
However, not all analysts are as upbeat in their outlook for the pair. According to the USD/ZAR forecast provided by Longforecast.com, the pair’s rate is expected to perform flat in the next four years, with the exception of occasional, short-lived price fluctuations, trading at 14.307 by December 2023.
The USD/ZAR technical analysis conducted by TradingView.com shows real-time ratings for the pair for one month. Here are the results:
The bottom line
The main advantage of choosing exotic pairs over majors is that with lower liquidity comes higher volatility, which, in turn, may offer higher potential returns due to wider price fluctuations. However, remember that this also entails a higher risk factor.
Before investing in the USD/ZAR pair, we suggest you to arm yourself with as much knowledge as possible. Keep an eye on the economic calendar to stay on top of the events that may cause volatility in the pair’s rate.
If you think you are not ready to make long-term investment commitments, but still want to try to profit from the forex volatility, you can do so through contracts for difference (CFD), instead.
You can learn more about CFD trading with our free online courses. Join Capital.com to follow the latest USDZAR news and market developments to make rational trading decisions.
Are you ready to make your own USD/ZAR predictions? Follow our comprehensive live chart to always be up-to-date with the pair’s latest performance.