Analysts ‘scramble’ to change their forecasts for the rand

After years of being a one-way bet, South Africa’s rand seems to have turned a corner.

This is according to a new analysis published by Bloomberq Quint, which found that after the currency gained in 2017 after five straight years of losses – and extended the advance since January – traders are starting to adapt to what may be the ‘new normal’ for the South African currency.

Bloomberg’s data – which credited the wave of optimism to the election of Cyril Ramaphosa as both ANC and subsequently national president – found that the cost of hedging against rand weakness using currency options is continuing to fall, while the premium of options to sell the rand versus those to buy it over the next six months dropped to the lowest in more than 10 years last week, indicating that traders are cutting bearish bets.

The number of open non-commercial short rand-dollar contracts is also at the lowest since August, according to Commodity Futures Trading Commission data.

Long-rand contracts outnumber shorts by more than 400%, the data shows.

“As a result analysts are scrambling to update their forecasts for the currency,” Bloomberg said.

“As recently as December, the median prediction of analysts in Bloomberg surveys was for the rand to end 2018 at R14.50 per dollar. That’s come down to R12.30.

“Foreigners can’t seem to get enough of South African assets. Inflows into the country’s stocks and bonds are running at a combined daily average of R916 million ($78 million), compared with R216 million last year.

“That suggests investors are becoming more comfortable with the currency risk,” it said.


Read: Rand strengthens after better-than-expected GDP data

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Analysts ‘scramble’ to change their forecasts for the rand