One of the tougher things to gauge in the world of Forex is just how currencies act individually, thus affecting the strength of other currencies and currency pairs. It’s often said that a wise investor carries a bottle of Tylenol around to deal with the constant headaches.
For South African traders trying to hold fast with the Rand, they were a little disappointed last Wednesday, as the Dollar continued to gain strength. Of course, one currency gaining strength over another is nothing new; certainly not new news. It occurs frequently. What’s so troubling about this predicament, though, is that the Rand laid down like a tired puppy as the Dollar stood triumphantly over its carcass.
Due to the third round of stimulus spending by the United States, the Dollar did something that surprised many – it grew in strength instead of becoming a watered-down product. Some had predicted this, but not nearly enough that it wasn’t a shock. The Dollar had been struggling against other major currencies recently, but with more confidence in the American note, coupled with a less-than-savory retail sales year growth in South Africa, the USD gained momentum while the ZAR flailed around like a hurt duck.
The growth in South Africa’s retail trade was low, dropping 4.2% in year-on-year statistics, even after an upward 8.6% increase in June. The 4.2% was exactly 3% lower than was expected by economists, and the bottom subsequently almost dropped out.
While the Rand is continuing to recover, as currencies tend to do, this still provides a valuable lesson to traders out there. Just because one currency is predicted to fall while the other is predicted to rise doesn’t mean that the opposite won’t happen.