{"id":226785,"date":"2018-02-21T08:16:08","date_gmt":"2018-02-21T06:16:08","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=226785"},"modified":"2018-02-21T08:16:08","modified_gmt":"2018-02-21T06:16:08","slug":"is-the-party-over-for-the-rand","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/226785\/is-the-party-over-for-the-rand\/","title":{"rendered":"Is the party over for the rand?"},"content":{"rendered":"

South Africa\u2019s currency reached a three-year high after Cyril Ramaphosa was sworn in as head of state on Feb. 15, fueling optimism among investors that management of South Africa\u2019s economy will improve.<\/p>\n

Benchmark bond yields fell to levels last seen in 2013, while stocks had their best week in more than eight years. With the rand paring some of its advance this week, traders are divided about whether there\u2019s scope for further gains.<\/p>\n

Citigroup Inc. thinks the market has run ahead of itself, and took profit on its rand and interest-rate bets this week. JPMorgan Chase & Co. agrees, but is staying put in the absence of any near-term triggers to spark a correction. Societe Generale SA, on the other hand, increased its overweight exposure to South African sovereign debt, while Standard Chartered Plc is betting on further rand strength.<\/p>\n

\u201cThere has been a fantastic run in rand assets,\u201d Luis Costa, a strategist at Citigroup Global Markets Ltd., wrote in a note Monday. \u201cThe so-called Ramaphosa rally has indeed materialized. It is now time for some reflection.\u201d<\/p>\n

These charts provide some food for thought:<\/p>\n

\"\"<\/a><\/p>\n

Momentum indicators suggest the rand\u2019s not about to surrender its gains. The dollar\u2019s 14-day relative strength index versus the rand has remained above the 30 level since the beginning of February, and is moving higher.<\/p>\n

A level below 30 indicates to some traders that the rand has strengthened too quickly and is due for a correction. While a reading just above 30 hardly suggests further rand gains, it also indicates that the market\u2019s not yet ripe for a retreat.<\/p>\n

\"\"<\/a><\/p>\n

While JPMorgan sees the rand at about 7.5 percent overvalued, the currency\u2019s real effective exchange rate — a measure of its value against a basket of majors — is close to its long-term average, suggesting it\u2019s about as fairly valued on a trade-weighted basis as it\u2019s been in the past ten years.<\/p>\n

Short-term risks — such as a downgrade of rand debt to junk by Moody\u2019s Investors Service — are diminishing, so there\u2019s nothing to push the rand off its pedestal for now, JPMorgan\u2019s Anezka Christovova wrote in a note to clients.<\/p>\n

\"\"<\/a><\/p>\n

The rand\u2019s implied volatility is on the decline from the elevated levels it reached during the leadership battle between Ramaphosa and Jacob Zuma. That suggests traders are anticipating price swings to narrow even as short-term risk factors — including Wednesday\u2019s budget presentation and the debt-rating review by Moody\u2019s — approach.<\/p>\n

The premium of options to sell the currency versus those to buy it, known as the 25-Delta risk reversal, is also ticking lower as traders cut back on bearish bets.<\/p>\n

\u201cThe bond and currency markets now seem to be largely, if not fully, pricing in significant fiscal consolidation and, as such, a steady rating by Moody\u2019s,\u201d Zaakirah Ismail, a strategist at Standard Bank Group Ltd., said in a note Tuesday.<\/p>\n

\n

Read:\u00a0How the rand could react to Ramaphosa\u2019s administration over the next 12 months<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

South Africa\u2019s currency reached a three-year high after Cyril Ramaphosa was sworn in as head of state on Feb. 15, fueling optimism among investors that management of South Africa\u2019s economy will improve.<\/p>\n","protected":false},"author":59,"featured_media":222769,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[],"class_list":["post-226785","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/226785","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=226785"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/226785\/revisions"}],"predecessor-version":[{"id":226793,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/226785\/revisions\/226793"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/222769"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=226785"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=226785"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=226785"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}