Online Reporter
A GAUGE of expected volatility for the rand versus the dollar is at its lowest level since the turn of the century, suggesting traders expect little upheaval for the South African currency as the year draws to a close.
One-month implied volatility fell to 7,9 percent, the lowest since February 2000.
The measure has plunged from as high as 15,55 percent in April, when President Trump’s tariff announcements roiled global markets.
The rand often trades as a proxy for emerging-market sentiment, making it vulnerable to sudden price swings, with average realised one-month volatility over the past five years of 13,1 percent.
But an improving fiscal and economic backdrop, moderating inflation and elevated commodity prices have supported the currency this year, fuelling a 10 percent gain against the dollar.
Expectations that the Federal Reserve will cut interest rates are also boosting the relative appeal of high-yielding currencies like the rand. Foreign investors have been net buyers of R175 billion of South African bonds this year, according to National Treasury data.
“We are seeing a global environment of Fed easing, stable global growth and metals prices going up,” said Anders Faergemann, a portfolio manager at PineBridge Investments.
“Domestically, the institutional framework is also signalling marginal improvements, with the South African Reserve Bank doing a great job, which further points to a stable market environment.” — Bloomberg
