Next Week Becomes Less Daunting for Rand Traders as Swings Ebb

JOHANNESBURG (Capital Markets in Africa) – For the first time since August, traders are less concerned about the rand’s immediate future than the longer-term outlook for the currency.

One-week implied volatility for the rand against the dollar fell below one-month volatility this week, with the three-month, six-month and one-year measures dropping even lower. That’s a turnaround from a month ago, when short-term volatility surged amid a sell-off sparked by crises in Argentina and Turkey.

The normalization of the volatility curve is a short-term bullish signal for the rand, which gained the most in a month on Wednesday as some investors called an end to the emerging-market rout and an unexpected slowdown in South African inflation also supported the currency.

 “Traders are piling into the liquid currencies that have weakened the most since August in the hope of catching a rebound in emerging-market currencies, even if it will be temporary,” says Per Hammarlund, chief emerging markets strategist at SEB in Stockholm. “It is a risk-on day today and the rand is one of the currencies that move the most on changes in investor sentiment.”

There are still hurdles for the South African currency though with an interest rate decision pending from the country’s central bank on Thursday. Only three out of 19 economists in a Bloomberg survey are predicting an increase, which might backstop the rand as other countries including Turkey and Russia tighten policy.

The rand strengthened 1.7 percent to 14.6529 per dollar by 3:48 p.m. in Johannesburg.

Source: Bloomberg Business News