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FxWirePro: South African Rand drops on less hawkish SARB – Use ITM instruments to hedge both USD/ZAR minor and major trend

As generally expected, the South African central bank (SARB) left its key interest rate at 6.75% today. The statement sounded less hawkish because the SARB has significantly lowered its inflation forecasts and its key rate outlook. This was mainly due to the significant decline in oil prices in the fourth quarter of 2018, a more favorable outlook for food prices and the firmer rand (ZAR).

In contrast to November, when their models implied four interest rate hikes of 25 basis points by the end of 2020, now only one rate hike is expected this year, and a stable key interest rate thereafter. Growth forecasts have also been revised slightly downwards. The SARB now expects growth of 1.7% for this year and 2% still for next year. At the same time, it sees the risks for the still hesitant recovery on the downside, which might be aggravated by possible ongoing power outages. In addition, the central bank governor noted that the bank model now considers the rand less undervalued as a result of the appreciation since the November meeting. 

The South African central bank is expected to remain vigilant and ready to act with regard to inflation risks. USDZAR, however, increased slightly after the less hawkish statement. Courtesy: Commerzbank

Trading tips: As we could see little strength of ZAR in the short-run and the robust major uptrend cannot afford to be disregarded, at spot reference: 13.7850 levels, 3m USDZAR (1%) in the money call is advocated. Both trades are meant on hedging grounds, a deep in the money call with very strong delta would most likely to move in tandem with the underlying moves.

Currency Strength Index: FxWirePro's hourly USD spot index is flashing at 39 levels (which is bullish) while articulating at (14:05 GMT). 

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

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