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FxWirePro: ZAR buzzes among EMFX universe but FX derivatives markets skeptic about weakness

  • South African currency has been the major winner among the EMFX universe, with USDZAR losing about -1.16% in last two days.
  • However, the caution is warranted as hedging in the options and futures markets suggest that the rand could weaken.
  • The South African rand appears to be robust, strengthening almost 10c against the US dollar but caution is warranted as hedging in the options and futures markets suggest that the currency could weaken with one-month implied volatility on USDZAR surpassing that of the Turkish lira, Brazilian real and Mexican peso. Persistent, albeit moderate, bond and equity outflows from local markets since mid-February is yet another sign that investors are cautious about upcoming event risk and its impact on an already weak economy.
  • USDZAR opens at 14.4122; EURZAR is at 16.3154, and GBPZAR at 19.1482 levels.
  • 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.
  • Currency Strength Index: FxWirePro's hourly USD spot index is inching towards -20 levels (which is mildly bearish), while articulating (at 13:42 GMT). 

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

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