AUDZAR definition

AUD/ZAR pairs the Australian dollar with the South African rand, expressing how many rand one Australian dollar will buy. It is an exotic pairing of two commodity-driven currencies, and like most exotics it is volatile and relatively illiquid, which translates into wide spreads and the potential for abrupt price swings.

The Australian dollar is the base currency and the rand the quote currency, so a quote of 12.2000 means one Australian dollar buys 12.2000 rand. When the rate rises the Australian dollar is gaining on the rand, and when it falls the rand is gaining. You take a forex CFD position to trade the direction rather than buy the currencies: long if you back the Australian dollar, short if you back the rand. A pip is the fourth decimal place, and your outcome is the pips multiplied by your position size.

Both legs are tied to commodities but to different ones, which is what gives this exotic its character. The Australian dollar moves with iron ore, Chinese demand and the Reserve Bank of Australia, while the rand tracks gold and other commodity prices and offers a high yield that draws carry-trade flows. That high yield also makes the rand sharply sensitive to risk sentiment, so a turn away from risk can hit it hard and send the pair lurching.