Forex Trading Online South Africa

US Monetary Policy and the South African Rand

News   •   Nov 04, 2010 20:20 GMT

The South African rand rose to a three year high following an announcement by the United States Federal Reserve. The US Federal Reserve announced that it was increasing quantitative easing. Quantitative easing increases the amount of currency that a bank has on hand. The excess in reserve is currency that the bank can use to counteract failure of traditional monetary policies –such as bank interest rates falling to a mark of zero.

“Quantitative” increases the specific quantity of money that banks have available and "easing" decreases the pressure on banks. Quantitative easing has added billions of dollars into the stock market. This will bolstered the US economy, and strengthen the dollar which is a positive development for all worldwide investors.

The hesitancy by the US Reserve made stock market trading lethargic causing the value of the rand to weaken. The value of all trading plummeted waiting on the global recovery of the US dollar. The United States Federal Reserve caused worldwide stock market panic as anxious investors wanted to see what the United Federal Reserve was going to do to help the failing US economy. South African bonds also weakened when the currency decreased.

The quantitative easing is expected to continue boosting the United States economy and this will increase the value of the dollar in open trading. Overall, this monetary policy has been good for South Africa but it will be awhile to fully determine if the upward trend will continue-it is still too early to predict the future implications.

Currently the gains of the rand have been significant with more than a 27 percent increase versus the US dollar. In a phone intveriew with Forex Trading Online it was concluded that the South African stock market will end the year on a high note, thanks to eager investors who are looking to invest in South African high yield assets.