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of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
SOUTH AFRICA
- USD/ZAR 1m risk reversals have fallen sharply since the start of October after peaking at 2.40 with early September's lows and major support extending back to September 2020 coming into focus at 2.00.
- Relative to peers Russia & Turkey, USD/ZAR 1m risk reversals have fallen sharply while the former have risen slightly in October.
- In terms of option implied probability, markets reflect a slight downside skew with a 38.1% chance of USD/ZAR moving below 14.70 on a 1m basis (through the 50dma) vs 29.5% of a move above 15.20.
- Key support in USD/ZAR stands at 14.80 and this currently holds a 43.7% probability of being broken to the downside before the end of the month. Local sell-side banks have a more favourable view of ZAR into year end, targeting 14.25 vs the USD - but this currently holds a 26.1% probability.
- Going into the medium-term budget at the end of the month, SA's more positive fiscal picture may start coming into focus with the 1m risk reversal now capturing both this and the 3 Nov FOMC meeting.
- However, price action will need to negotiate more pressing near-term risks from the downturn in Chinese growth expectations, FOMC tapering and expectations for US rates lift off keeping EM risk assets on the back foot.
- Interestingly, the positive correlation between spot, RRs and implied vols seen at the beginning of the year (likely reflecting demand for downside ZAR hedges) seems to have broken down.
- We're now seeing spot and risk reversals dislocating slightly across October, leaving potential for spot to correct lower or an options mismatch with the primary driver of RRs likely being USD/ZAR put vol at this stage.
USD/ZAR 1m RRs
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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