{"id":391035,"date":"2020-04-20T15:40:46","date_gmt":"2020-04-20T13:40:46","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=391035"},"modified":"2020-04-20T15:40:46","modified_gmt":"2020-04-20T13:40:46","slug":"two-golden-rules-dont-buy-rand-and-dont-buy-rand","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/391035\/two-golden-rules-dont-buy-rand-and-dont-buy-rand\/","title":{"rendered":"Two golden rules: don\u2019t buy rand, and don\u2019t buy rand"},"content":{"rendered":"

South Africa\u2019s rand is cheap for good reason, according to Union Bancaire Privee.<\/p>\n

The rand\u2019s real effective exchange rate, which measures its inflation-adjusted value relative to the currencies of its main trading partners, has dropped to the lowest level since March 2016, according to a JPMorgan Chase & Co index.<\/p>\n

But that doesn\u2019t mean the currency is poised for a rebound, said Peter Kinsella, the London-based global head of forex strategy at UBP.<\/p>\n

\u201cOn my old trading desk, there were two rules,\u201d Kinsella said in a note to clients. \u201cThe first rule was that you were not allowed to buy rand. The second rule was to always remember the first rule. This anecdote gives some idea about the long-standing nature of structural rand weakness.\u201d<\/p>\n

The rand\u2019s implied volatility is more than 20% on a one-month and three-month basis, second only to Turkey\u2019s lira in a basket of emerging-market currencies tracked by Bloomberg.<\/p>\n

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

The premium of options to sell the currency in the next month over those to buy it, known as the 25-Delta risk reversal, has risen 92 basis points in April.<\/p>\n

It\u2019s now at 5.50 percentage points, suggesting that investors expect even more weakness from the rand.<\/p>\n

The rand is already the biggest loser versus the dollar in risk currencies this year, down more than 25%, after a credit downgrade to junk by Moody\u2019s Investors Service added to concerns about the government\u2019s debt levels as it battles to support the economy amid the spread of the coronavirus.<\/p>\n

The currency declined 0.3% to R18.76 per dollar by 2:13 p.m. in Johannesburg.<\/p>\n

The South African Reserve Bank has cut its policy rate three times this year to an all-time low, reducing the rand\u2019s yield advantage. The economy is headed for a contraction of 6.1% this year, the central bank estimates.<\/p>\n

\u201cIn the absence of materially higher growth and or higher carry, a rand recovery is going to be difficult,\u201d said Kinsella, said.<\/p>\n

\u201cThe bottom line is that risks remain skewed\u201d toward rand weakness, he said.<\/p>\n

\n

Read: Economists propose R400 billion relief plan for Covid-19<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

South Africa\u2019s rand is cheap for good reason, according to Union Bancaire Privee.<\/p>\n","protected":false},"author":59,"featured_media":222769,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9872],"tags":[26,5348,14863],"class_list":["post-391035","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-headline","tag-jpmorgan-chase-co","tag-union-bancaire-privee"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/391035","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=391035"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/391035\/revisions"}],"predecessor-version":[{"id":391039,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/391035\/revisions\/391039"}],"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=391035"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=391035"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=391035"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}