WHILE markets are argued to be efficient, technical analysts believe that history repeats itself. Revelations of 2010 in currencies, stocks and commodities leave a lot to every trader.
Corporates were exposed to foreign currency risk and central banks across the globe were forced to put on their thinking caps now and again.
Furthermore economic data released in the first week of 2011 from the US and Eurozone do not show any signs of global economic recovery.
During the first week of 2011, there was some consolidation of the euro, commodity prices dipped temporarily and a slight movement on the United States dollar. The general watch is on the movement of the euro and the dollar and a reaction to the directions they take. One such example is the sentiment over China’s stance to curb inflation through an increase in interest rates which is a threat for the stability of these alternative asset currencies.
With the multicurrency system, Zimbabwe is not immune to these currency jitters.
The rand in particular is the main focus in Zimbabwe as it has greater implication on the country’s inflation figures. Zimbabwe is a net importer to South Africa making it the dependable factor when it comes to trade.
For a good part of 2010, increases in the inflation rate were due to a number of factors, including the firming of the rand.
By the end of 2010, the price of basic commodities had shot up significantly as the rand ended the year on a high note.
This rally in the rand is not expected to slow down any time soon. The rand, just like the Australian dollar is supported by commodities. The past two years have offered impetus to a rally in commodities and precious metals.
For the period 2008/09 the world succumbed to a global financial crisis, while 2010 markets were weakened by the Eurozone debt crisis and the monetary easing programmes in the US.
This, coupled by the weakening of the dollar, has managed to uphold the gold price and leverage the rand in the process. At the beginning of 2008 when the country adopted the multicurrency system, the US dollar/rand rate was at 10,2 in March 2009 and closed at 6,65 in 2010.
What bears in 2011 is very uncertain as to what will be the fate of the regional currency given the mixed views on interest rate cuts available to the South Africa Reserve bank and the possibility of a correction in commodities prices.
As the rand rallies on, there are some issues which still need attention when it comes to other major world currencies, with much highlight on the euro and the dollar. For the euro, the Eurozone debt downgrades continue to dampen efforts of the European Central Bank.
The US dollar on the other hand is dependent on the recovery of the US economy and also the effect of the second round of quantitative easing that will be in operation till June this year.
Additionally, global central banks will also play a role as they respond to perceived currency wars and China’s stance on interest rates.
The outlook however points out to a gloomy global economy which might continue to depress performance of global markets. Buoyed by such events, commodities like gold may continue to rally.
Gold and silver are mainly considered as a store of value but of these, gold has been used since time immemorial.
However, its industrial use, unlike silver is limited. Largely, the performance of these metals is a knee-jerk response from policy-makers’ stance on economic management.
For example the price of gold which is the main pillar of support for commodity currencies tend to follow what is happening in the international space.
This includes, central banks’ inflation targets, interest rates, and expected currency trading within trading blocs among other targets. A decision on these factors consequently determines risk appetite and thus the flow of funds into stocks, commodities or currencies.