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Citi See Value in ZAR Calls

ZAR
  • Citi write in favour of digital ZAR calls amid cheap valuations, compressed vols and downside smile convexity.
  • They write that the ZAR sell-off is justified given the softer China data but is inconsistent with compressed yield differentials and improving data surprises.
  • Resultingly, they see scope for ZAR to outperform ahead as the carry gap with higher-yielding EM currencies (they cite LATAM specifically) and see the attraction of low strike USDZAR digital puts, effectively long Vol and low delta risk reversals.

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