The collapse of exotic currencies. The case of The South African Rand

Exotic currencies are the ones that probably offer the best and clearest trends of all currencies. Contrary to majors, some of the exotic currencies have something in common: continuous and long term falls against the majors, like the $, €, or GBP. Or even more when compared to the CHF or JPY (Swiss Franc or Yen). However, the majors are more interesting to trade from a technical point of view and have better conditions in general (lower costs). In that regard, we should not think quit trading the majors like he EURUSD, EURJPY, GBPJPY or AUDUSD. And think that it is best to trade the exotics, like the Rand, The Peso, The Lira, and The Rupee. Majors offer us better volatility and much better conditions to trade the medium term. The exotic currencies offer us a more trendy perspective for the long term –as I said they are in a multi-decade bear market against the majors – though with more erratic behavior. Somehow and despite the long-term trends, exotic pairs are a lot harder to trade than the majors and are not recommendable to trade short term swings. The long-term trend, however, is so obvious than they could offer us some medium (or long term) speculation ideas. As André Kostolany would say, from 6 months to 3 or 5 years trades.

One of the most interesting exotic currencies is the South African Rand. We do not need to have a master degree in South African politics or economics to notice that their economy and society are in a very serious crisis for more than 40 years. We just need to look at the Rand long term chart against the $, or any other major currency.

It is well known that hundreds of thousands of South Africans of Boer or English ascendancy have left the country the last decades. And the fact that South African cities are one of the most dangerous places on earth. Every South African can confirm that. There are some of them in Spain, more than I thought.

The situation there does not seem that is going to improve anytime soon. The political situation there seems to be dominated by populist parties (Not very different from Europe anyhow). But despite all this, the most important thing for a trader or speculator is to have a look at the long term chart of the asset. And what does it tell us?

We just need to see it for a few seconds to notice that the Rand is, in what seems, an eternal bear market against the $. A trend that is only interrupted by some secondary reversals like the one in 2003 when the $ fell 60% against the Rand. Nothing compared with the 2000% bear market that the Rand had endured till then (1).

Nowadays, it is not a very interesting market to trade. But this market gives us a couple of interesting points for the future: the tops of 2002 and 2008, when the market topped at 13.85 and 11.85 approximately. My experience as a trader tells me that when the market trades again at 13.85 it is very likely that we will have a major breakout that could send the Rand to 20, 25 of more. The bear market against the Swiss or the Yen (has been and) could be even worse.

We have to bear in mind that the Rand has a current interest rate of 5.75%, what makes it an expensive currency to trade in terms of rollover. We also have to know that the typical spread is quite high for this currency. That is why this is not a currency to be traded most of the time. The best is to trade it occasionally and to look for big rides.

One of the favorite Bruce Kovner trades was to look for major and multiyear breakouts in the exotic currencies. This case may be one of those major breakouts when the Rand approaches 14 (2). In fact, I think that there is a good chance that when the Rand (USDZAR) quotes at 14, we could witness a major collapse. As for today (USDZAR at 11), this is not a very interesting currency from my point of view. There are always other assets trading at its highest price everywhere.


  1. The Rand went to 0.7 (USDZAR) to 3.5 from early seventies to 1993.
  2. It is very plausible that when the Rand goes to those levels, close to 14, there will be major resistance and many attempts to go beyond that price. There is also a big chance that the next gold bull market causes a bear market in the $.


P.S. This is a personal translation from my spanish blog

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