Have you ever wondered what causes the rise and drop in commodity prices? While there are several factors at play, the most significant cause is the fluctuating value of a country\u2019s currency.<\/p>\n
We\u2019ve seen this happen with our own rand in the past few months as our currency has tumbled and gained momentary reprieves, so has the price of certain commodities.<\/p>\n
As things currently stand our currency is doing better than it was in January of this year, but with the ominous threat of \u2018junk status\u2019 around the corner we can\u2019t be sure what the future holds – and the recent political instability poses some unknowns. However\u2026 if the political decisions move in a constructive democratic direction, our Rand will strengthen.<\/p>\n
So what causes a currency\u2019s value to fluctuate?<\/strong><\/p>\n There are quite a few factors at play. These are just a few of them:<\/p>\n Countries like South Africa operate a flexible exchange rate system, which means the value of the rand is determined by the market forces of supply and demand. In some other countries, like the United Arab Emirates, they have fixed exchange rates. Such countries, mainly oil-producing countries and ones with small populations, have very stable and predictable economies.<\/p>\n The strength or weakness of a currency always reflects on the prices of goods.<\/p>\n If commodities are imported for manufacturing processes, then the cost of finished products will be significantly higher in a country with a weaker currency. However, if the country is producing more raw materials and goods locally, there\u2019s a better chance of keeping prices stable and inflation low.<\/p>\n The moral of the story from this blog\u2026? Local is lekker!<\/p>\n\n