Rand Poised for Rebound as Options Market Turns More Bullish
Positioning in the options market suggests South Africa’s rand is poised for a rebound that may be as steep as its rapid decline in December.
The rand is on track for its worst December performance since 2015, and its biggest quarterly decline in more than two years. That came after hedge funds liquidated long rand-dollar futures at the fastest pace on record in the week through Dec. 17, going to just 1,422 net long contracts from 27,927, according to Commodity Futures Trading Commission data.
But with the rand having wiped out all its 2024 gains and hovering around its weakest level since the May elections, options traders are betting the fundamentals that drove the pre-December rally will come back into play after New Year.
Six-month risk reversals — the premium of options to sell the currency over those to buy it — are at the lowest on record. The one- and three-month tenors are also close to record lows. That means the cost of hedging against further rand declines is now cheaper than it’s been in years — a sign that the December shakeout may have run its course.
The rand gained 0.5% to 18.7463 per dollar by 3:23 p.m. in Johannesburg, after briefly trading above 19 on Wednesday.
