currency

[#1]

Can someone please tell me why currency strengthens when interest rates are raised,etc..

[JohnnyCash]

DT, the differences between currencies are down to the difference in interest rates of the respective countries. When SA raises rates by 1/2% then it is more attractive than other countries yields so overseas investors buy Rand-Bonds. That results in our currency strengthening until such time that the additional increase have been catered for in the difference in yields/interest rates.

[#3]

So basically the Rand strengthens due to the inflow of overseas currency buying bonds..?

[JohnnyCash]

Yep, and that will result in decreasing the potential yield for overseas investors and bring us back to the real rate differential.

[#5]

Got it,thanks.

[ABuzz]

The recent strengthening of the Rand was also caused by the Standard Bank deal, i.e. them selling off 20% to the chinese (i.e. increased demand for Rand over Dollar). However, this deal is not going to bring in the $ 5,5 billion into this country as it is being transacted offshore, so this could see the reversal of some of the recent gains. Although there are too many other factors, so one can't just predict the direction based on just one factor.