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The South African currency headed for its fifth straight weekly growth against the U.S. dollar today as the traders speculated on the higher demand for the local currency from the carry trade participants.
The rand went up to its highest level against the U.S. currency during the last 6 weeks yesterday as the problems in the U.S. mortgage market proved to be more serious and the government will probably have to pour out more dollars to bail out the losing companies.
The South African currency continues to benefit from the interest rate difference it has with other countries. At 12 percent It’s currently at its highest value since 2003. This gives 10 percent benefit in yield against the U.S. dollar and 11.5 percent against Japanese yen.
The government is going to fight the inflation even at the cost of the slower economy growth. Such policy opens an opportunity for carry traders to gain from the rate difference for the long period of time.
Although today dollar strengthened against the South African currency, USD/ZAR currency pair declined this week from 7.6585 to 7.5893 or 0.9 percent.
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