Wealthy Nations Daily Update - South African Rand

Overnight, at one point the South African rand lost over 9% of its value, the biggest move since October 2008. The currency did recover, trading now down just 2.3%. At its lowest, the spot was trading at 17.9169 to the USD, before coming back to 16.51. Implied volatility for the 1 month at the money option moved up to 24.69% , a rise of 4.62%. The reason for this huge move seems to be risk aversion, poor liquidity with a combination of stops and margin calls.  

This kind of currency volatility is not new for the African country. In December last year the rand also suffered a major decline when the President, Jacob Zuma, dismissed his finance minister Nhlanhla Nene and replaced him with unknown backbencher David Van Rooyen.  The President then reversed the decision 4 days later and replaced Van Rooyen with former finance minister Pravin Gordhan. None of this helped market confidence, which along with a global slump in commodity prices has led to tepid economic growth over the last few quarters.  In 2015 the South African currency slumped 25% versus the USD.

Nhlanhla Nene’s sacking did not trigger the collapse and continued weakness in the currency according to Zuma. He said in a bullish interview this morning “The rand had been going down when Nene was there, it had been going down for months and months,” adding "I think people did not understand, I think that there was an exaggeration in terms of the reaction, there is no single person that can collapse a department, particularly a department like the Treasury".

On the back of the currency decline and inflation forecasts  bets are increasing that the Reserve Bank will raise rates by more than the 25 basis points that were being priced in on Friday. The next policy meeting is on the 27th and 28th January. Forward rates are now pricing in approximately 40bps of  hike.

For clarity, we do not hold the South African rand and never have held the currency in any of our portfolios.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.