FxWirePro: Bid USD/ZAR options trade as South African currency staged for further dips on risk-off and domestic fundamental landscape

Although the depreciation pressure due to global factors and risk-off sentiment recently eased somewhat, the rand was not able to benefit, as domestic factors such as the forthcoming rating review and the upcoming elections in May are having a negative impact. Weak economic data puts additional strain on ZAR. 

In January, production in the manufacturing sector fell seasonally adjusted by 2% mom, while the December result was revised up to +1%. Compared to the previous year, however, output grew by just 0.3% after 1.2% in December. Looking at the leading indicators, there is no hope of an improvement in the near future. The purchasing managers' index for the manufacturing sector slipped back into recession range in February. And the quarterly Business Confidence (BER) recently fell to its lowest level since June 2017. These are currently not good odds for the Rand, which we see for the time being under pressure to sell. 

Above all, the uncertainty about the rating review on 29 March is likely to lead to increased nervousness on the markets and thus to stronger fluctuations in ZAR exchange rates.

Trading tips: We advocated 3m USDZAR (1%) in the money call on hedging grounds. At spot reference: 14.4666 levels, we continue to uphold the same strategy as the underlying moves are foreseen to sense upside risks, a deep in the money call with very strong delta would most likely to move in tandem with the underlying moves. Courtesy: Ore & Commerzbank

Currency Strength Index: FxWirePro's hourly USD spot index is inching towards 3 levels (which is absolutely neutral) while articulating (at 13:14 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex