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Solid Gold, Softer Vols Aid ZAR Outperformance

ZAR
  • ZAR continues to outperform the broader EM FX space, with strength in gold, the fade off highs for US yields and the break of support in the USD Index adding to gains. USD/ZAR has edged through support and the bear trigger at mid-March’s 18.5066 – putting the pair at the lowest level since early Jan and within range of the YTD lows of 18.2639.
  • Strength in the local currency mirrors the firm outperformance of precious metals – and specifically gold – pushing South African mining stocks higher (GoldFields, Harmony Gold up 2.5% or more, Sibanye Stillwater higher by as much as 6%) to generate solid returns.
  • Falling volatility also helping favour ZAR for carry purposes, with the YTD decline in realised volatility now nearing 5 points and feeding directly into lower hedging costs: 1m implied vols hit 10.9 points this month, the lowest level since December 2019 and before the COVID crisis.

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