The rand\u2019s tentative recovery from a record low of 19.35 per dollar is encouraging options traders to prune bets on further losses.<\/p>\n
Implied volatility, which measures expected swings based on the price of options to buy and sell the rand, fell below actual volatility at the end of March, suggesting traders expected fluctuations to start moderating.<\/p>\n
That spread has continued to widen and is now the biggest in almost 11 years.<\/p>\n
Bullish Speculators<\/strong><\/p>\n Investors in the futures market are becoming more bullish. Traders now hold a net long-rand position, meaning contracts betting on rand gains against the dollar outweigh wagers on declines, Commodity Futures Trading Commission data show.<\/p>\n That\u2019s a turnaround from late March and early April, when net shorts were at the highest level in more than a year.<\/p>\n Sell-Off Overdone<\/strong><\/p>\n The rand\u2019s slump has pushed a technical indicator known as the relative strength index above the\u00a0oversold<\/span>\u00a0level.<\/p>\n The South African currency\u2019s monthly RSI has moved above 70, a level that suggests to some\u00a0traders that<\/span> the sell-off has gone too far and the rand may be poised for a rebound.<\/p>\n The last time the monthly RSI was above 70 was in March 2016, when it preceded a 10% gain in the ensuing 12 months.<\/p>\n Bond flows<\/strong><\/p>\n The relentless sell-off of South African government bonds – R60 billion rand ($3.2 billion) of outflows this year – has started to ease. A key risk – the country\u2019s exclusion from the FTSE World Government Bond Index – came and went at the end of April.<\/p>\n That means investors eyeing South Africa\u2019s relatively high yields don\u2019t have to worry about a sudden surge in outflows.<\/p>\n The 30-day moving average of daily outflows has dropped to R588 million from as high as R2.3 billion in April.<\/p>\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2020\/05\/Calm.jpg\")
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