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Expert insight: The impact of currency pairing on the rand

Katlego Sekhu

Expert insight: The impact of currency pairing on the rand
Photo by Pixabay: https://www.pexels.com/photo/rolled-20-u-s-dollar-bill-164527/

As part of 959 Breakfast’s series on the manipulation of the rand, the team delved into the topic of currency pairing. Sizwe Dhlomo reflected on an interview Gugulethu Mfuphi had with Andre Cilliers, Director and Currency Risk Strategist at TreasuryOne, unpacking this concept.

Cilliers shed light on the occurrence of currency pairing, which he notes typically happens when there is a significant deal taking place, such as a merger or capital transaction.

“When you look at the rand and how it is quoted, there is a price at which you can buy and a price at which you can sell. One would be bidding for dollars, and the other would be offering for dollars. Bidding would be from the person who needs to pay for imports, and the offer would be from somebody who needs to sell dollars.

“In between, we have what we call the bid of a spread. So when you have a big deal and there is a collaboration between banks, that means that they manipulate the bid and the offers going into the market at a specific point in time.”

Cilliers emphasized that the pairing of currencies does not directly influence the long-term direction of the currency.

“We must distinguish between transaction flows that go through on a daily basis and where the direction of the currency is heading in terms of economic fundamentals, political situations around the world, etc.

“For example, if you were to succeed in manipulating the currency, but at 3 o’clock in the afternoon there is an oil crisis and the price jumps, then there is now a way that the bid office spread for the day would outweigh the actions of a big event happening somewhere in the world.”

Listen to the full discussion on the podcast:

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Written by: Katlego



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