Will the financial crisis in South Africa impact Forex trading?

Will the financial crisis in South Africa impact Forex trading?

South Africa’s economy is causing economists considerable alarm. That’s because a succession of large-scale disruptions has worsened the country’s three primary macroeconomic issues: weak economic growth, rising inflation, and high unemployment.

Pandemics that began as health crises but swiftly turned into economic problems include the COVID outbreak, for example. Economic activity came to a standstill as the city was placed under lockdown.

The dollar strengthened against the rand as investors became more pessimistic about the global economy’s prospects.

The rand was trading at 16.4150 to the dollar at 1532 GMT, down 0.89 percent from its previous close. For the first time since October 2020, the rand fell to a record low of 16.4700.

In light of the economic uncertainties, the dollar index, which measures the greenback against six other currencies, rose by almost 0.6 percent. In this article, we’ll provide you with information on how the financial crisis in South Africa increased and how it influenced the Forex trading and market.

South African Rand losses its value

It’s been a rough ride for South Africa’s economy since 2009. Since then, it has never been able to recover to its pre-2007/2008 global economic slump levels of growth (financial crisis). One million people are said to have lost their jobs as a result of the crisis. There has been a reduction in demand for commodities as a consequence of changes in the price of these goods, which has had an impact on economic development since 2011. 

This tendency is true in today’s reality as well. South African Rand still continues to underperform. If you are an investor in the financial market, you should think that it’s time to start trading without putting any of your money and the main reason behind this is that it takes too many funds to get worthful benefits from trading with SA rand. Since 2010, growth in South Africa has been declining, averaging just 1.7% between 2011 and 2018. With 2019 upon us, South Africa is now experiencing its third downturn since 1994.  The global downturn following the global financial crisis, restrictive macroeconomic policies,  budget cuts,  declining commodity prices, slowed investment as a result of economic stagnation, deindustrialization, “state capture” (i.e. systemic corruption),  and insufficient electricity supply and resulting blackouts were some of the precipitating factors that were taken into consideration.

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

According to Bishop, “South Africa’s economic growth is at danger this year from the current severe load shedding regime introduced at stage 6, even if it varies to stage 4 sporadically.” The result for 2022 GDP will depend on how long the nation endures severe outages.

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

The rand is a currency in developing markets. As a result, a comparison of the company’s performance to that of its rivals might reveal whether it is driven by global or local causes. We can see that the rand has underperformed on JP Morgan’s EM currency Index throughout the course of this year. You may argue that a mix of global and local forces have contributed to the decline. This underperformance compared to other emerging markets (EMs) may be due to more than simply trade tensions and slowing global development; it may also be exacerbated by local factors such as bad economic data or resistance to structural reforms, given the magnitude of the devaluation. As a result, the brand may have burst through a number of levels of resistance.

At 10.425 percent, the yield on the benchmark 2030 government bond was down by 1.3 basis points.

How the financial crisis affects the Forex trading

Foreign currency swap markets have become 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 departure from the covered rate parity condition.

When it comes to the effect of the Financial crisis on Forex trading in South Africa, it should be stated that investors change their strategies in order to get as many benefits as possible. In the meantime, during the SA crisis, investors who are trading with the SA rand try to choose the currency airs which will give them the biggest difference between the currencies. In addition to that, those who want to speculate on the prices in the Forex market can choose the scalping strategy, which is one of the most common strategies among FX investors.