Using Foreign Currencies To Explain The Nominal Exchange Rate Of Rand
The Rand-US Dollar exchange rate has been very volatile since the unification of the duo-exchange rate in 1995. Many researchers have successfully found some economic variables as the long-run determinants of Rand exchange rate. This paper tries to substitute those economic variables with some foreign currencies' exchange rates. In fact, it found that the Brazilian Real could well represent the investors' perception towards South Africa; the Australian Dollar could reflect the Terms of Trade's impact on Rand. After taking into account the structural break in the Rand exchange rate in 2002, the paper found the three currencies' exchange rates were actually cointegrated. In the final section, whether this cointegration relationship would sustain in the future is discussed.