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Why Is The Rand So Cheap
26 November 2015

Over the course of this year to date, the South African Rand has weakened by over 20 percent against sterling. This is down to many reasons but the main causes are uncertainty within South Africa over their political situation which is unstable and the rising issues in the labour market with unemployment running at high levels. This makes investment in the country less attractive and those with assets there sell up and move funds out of the country, causing the currency to weaken.

The Rand is also a commodity led emerging market currency, with South Africa being a major exporter of gold, minerals and precious stones. With the decline in commodities over the year and gold prices dropping, as with other commodity based currencies like the Australian and New Zealand dollars, we have seen the Rand suffer as a result.

Commodities and gold are priced in US dollars which means the value of the dollar has an effect on the value of the Rand. We have seen the US dollar increase in value over the year as speculation has increased as to when the Federal Reserve will be voting to raise interest rates and as such the stronger dollar has led to a weaker Rand. We can see from the charts the jumps in Rand weakness coincide with the speculation over the rate rises in the US with particular focus around the summer and more recently as expectations of the hike rose to 70 percent. With this in mind, we should expect further Rand weakness when that expectation effectively jumps to 100 percent, when the Fed actually do raise rates which could be as soon as their next meeting on December 16th.

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