Rand Gets Some Reprieve, Implied Vols Fall As FinMin Downplays Risk Of U.S. Sanctions

Spot USD/ZAR has sold off sharply this morning, moving away from all-time highs, as Finance Minister Godongwana indicated that South Africa and the U.S. have managed to defuse tensions over the alleged delivery of weapons to Russia. South African officials maintain that they are not aware of any such arms sale, while President Ramaphosa ordered an independent probe into the matter.

• When this is being typed, spot USD/ZAR trades at ZAR19.0660, down ~2,750 pips on the day, while the RSI has returned from overbought territory flagging potential for a bearish reversal. The initial downside target is provided by ZAR18.5075, the high print of May 2. Conversely, a resumption of gains past the psychological ZAR20.00 figure would suggest that bullish momentum remains in place.
• Note that despite today's recovery, the rand remains close to its historic highs and continues to face a suite of familiar headwinds, from a domestic energy crisis to diplomatic challenges. USD/ZAR implied volatilities have trimmed their recent surge but remain elevated relative to the levels seen earlier this month, with risk reversals still skewed firmly in a bullish direction.
• Local-currency bonds have soared across the curve amid reprieve on the diplomatic front. Yields have now recovered from worst levels but remain lower across the curve. South Africa's 10-year breakeven inflation rate sits at 6.90%, retracing the initial slump.
• The aggregate BBG Commodity Index has added ~0.4% today and the precious metals subindex sits ~0.2% higher on the day.