High Rand Foreign Exchange Volatility expected to continue

The USD – ZAR volatility at the moment is extreme and is likely to remain this way for a while as investors are trying to better understand what is fundamental and what is technical.

With the USD – ZAR exchange rate back down to 16.5300 some nerves will be settled and speculation on an early Reserve Bank (SARB) meeting will likely fade. This morning, market trading variables have moved back in the ZAR’s favour. The Chinese Yuan has stabilised, Chinese data has beaten expectations to the topside, which has helped stabilise stock markets. Risk aversion has subsided and the Japanese Yen as a funding currency for carry trades has come back under pressure, all of which helps one understand the improvement in sentiment on the ZAR.

On the more technical front, the spike stronger in the ZAR yesterday happened in relatively thin volumes and through some technical stops being triggered. It is clear that volatility will be the name of the game, especially ahead of some key risk events that will happen in the form of the upcoming Monetary Policy Committee (MPC) decision and statement of the SARB, the President’s State of the Nation address and the budget that will be announced in February by re-appointed Minister of Finance, Pravin Gordhan.

Nothing in the way of fresh news to trade on today and a relatively quiet data session both domestically and abroad will likely translate into some stability with regards to the ZAR.

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