Thursday, October 20, 2011

Today's Major Market Move: South African Rand Weakens 4.3% Against the USD this Week

The South African Rand has seen significant volatility over the past couple of months and this week was no different. It's down 4.3% vs the USD since Sunday; the worst performing currency over that time period.

Click on the image for a larger view.
Click here to go to the live table.

The Rand is considered a "commodity currency" along with the Australian Dollar, Canadian Dollar, and Brazilian Real, to name a few. Since the end of August, the Rand has tracked the inverse of the Gold futures almost perfectly (South Africa is the #1 producer of gold in the world).

Click on the image for a larger view.
Click here to go to the live chart.

According to this article on the WSJ, the recent price action has the South African authorities concerned and they state they are prepared to intervene. Of course, it's much easier to weaken a currency (theoretically a central bank has infinite capacity to do so) than to strengthen one (where a central bank is going to be limited by their foreign reserves and their ability to raise interest rates). Considering that the South Africans are actually thinking about lowering rates to perpetuate growth, this would leave foreign reserve exchanges as the only remaining option for supporting the currency.

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