FxWirePro: Spotlight on South African Budget, Rand Likely to Suffer on Sluggish Fiscal Delivery – Uphold USD/ZAR ITM Longs

Today the South African finance minister presents the budget for the fiscal year 2019/2020. Convincing the markets will not be an easy task. After all, the budget deficit is around 4% of GDP and the government debt is just under 60% of GDP. 

While the economy is only recovering slowly, the government must put its finances in order. The debacle surrounding the highly indebted state power producer is making the whole thing even more difficult. Controlled and rotating power outages have been taking place again for several weeks now, which in turn has increased concerns about the economy. 

In this context, the market is hoping for statements from the government today on how it intends to deal with this problem. As said before, not an easy task. We see the risk that the government will not be able to deliver enough, hence the downside trend of the rand that started at the beginning of this month is likely to continue. 

Trading tips: We advocated 3m USDZAR (1%) in the money call on hedging grounds. At spot reference: 14.1476 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.

Most importantly, 3m ITM calls are trading just 2.5% more than NPV, which is reasonable. Courtesy: Ore & Commerzbank

Currency Strength Index: FxWirePro's hourly USD spot index is inching towards -67 levels (which is bearish), while articulating (at 11:37 GMT).

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