Financial markets move for technical and fundamental reasons. Fundamental analysis is usually worth more than technical analysis for stocks. But for the forex market, it may be different. In any case, economic news impacts the forex market, as the overall market needs a reason to move. And that reason is most often connected to economic news.
What Moves the Forex Market in South Africa?
The forex market is made up of currency pairs, which reflect the value of one currency in terms of another. In other words, for a currency pair, it is equally important to interpret economic news coming from both countries or regions.
For example, consider that you are bearish on the South African rand. More precisely, you expect it to depreciate, and the reason might be that the GDP (gross domestic product) will disappoint in the future.
But the next question should be: against what currency will the ZAR depreciate? Remember that in a currency pair, if one currency depreciates, the other one must appreciate.
Hence, looking at both sides of the story is always important. In this case, the economic news coming from the two countries or regions that make up a currency pair.
So, if you want to improve your trade on the best forex trading platform in South Africa, you might want to pay attention to the economic calendar – both the local and the international one.
What moves the currency market? Interest rate changes are the first thing to look for. Central banks have a mandate, and it is focused on price stability. Economists have agreed that a certain level of inflation is good for constant economic growth, so inflation is part of every central bank’s mandate. If the prices of goods and services deviate from the targeted level, the central bank steps in and hikes (if inflation is above the target) or cuts (if inflation is below the target) the interest rate. In developed economies, central banks agree that 2% inflation is a logical target, but the level differs from region to region.
Therefore, the first thing to consider is what the South African central bank will likely do next. For that, one should check the calendar and see the dates for the upcoming meetings.
Also, local economic data, such as the GDP, the unemployment rate, or business surveys, may impact the local currency.
And then there is the international economic data. Remember, the ZAR may move on local data, but a currency pair will move on international data too.
Here, one should start with the Federal Reserve of the United States. This is the most important central bank in the world, as it sets the monetary policy for the world’s reserve currency.
Therefore, what the Federal Reserve does is usually copied by other central banks. In addition, when the dollar moves, the entire forex market moves.
By Ruben Lou, Founder of Authority Specialists