DailySun
Market positioning in the options sector suggests that South Africa’s rand is poised for a rebound that could be as dramatic as its rapid decline in December.
The rand is on track for its weakest December performance since 2015, experiencing its biggest quarterly decline in over two years. This situation follows a record-speed liquidation of long rand-dollar futures by hedge funds during the week ending 17 December, plummeting from 27,927 net long contracts to just 1,422, based on data from the Commodity Futures Trading Commission.
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Nonetheless, the rand has erased all of its gains from 2024 and is hovering at its lowest level since the elections in May. Options traders are hopeful that the fundamental factors that fueled the rally prior to December will re-emerge after the New Year.
Six-month risk reversals — reflecting the premium difference between options to sell the currency and those to buy it — are currently at an all-time low. Moreover, the one- and three-month tenors are approaching historic lows as well.
This suggests that the cost of hedging against further drops in the rand is more economical than it has been for years, indicating that the tumult of December might have reached its end.
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The rand showed strength since Wednesday (25 December) after briefly surpassing R19 to the US dollar. By midday Sunday, it was trading at approximately R18.70.
© 2024 Bloomberg
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