1. FX Outlook
  2. FX Options Weekly

Macro and Vol Commentary

The rand continued to weaken in the latter half of the month as dollar strength pushed the USDZAR pair into the 17.00 level once again. In comparison to other EM currencies, however, the rand has outperformed. As we await the Fed and South Africa's central bank moves by the end of this month, what is the trajectory for the currency in the near term?


  • The South African economy remained firm in July as businesses saw client demand improve, despite rising price pressures dampening spending in some cases.
  • Business sentiment rose to a four-month high of 110.3 in July as tourism numbers and new vehicle sales increased, up from 108.5 in June
    • This is the highest level since March and may signal the business climate is gradually returning to normality
  • Tourism numbers almost doubled year-on-year in May, and income from tourist accommodation increased by 87%.
    • Still, a slowdown in economic growth and difficulties in addressing uncontrolled unemployment are likely to weigh on sentiment in the coming months.
  • Manufacturing output fell 3.5% y/y in June after falling by 1.8% in May
    • This is below the market expectations of a 2.9% decline.
    • The S&P Global indicator, however pointed to improved conditions in July, with new business growth quickening to the fastest rate since May 2021, leading to accelerations in both output and employment growth.
      • New vehicle sales rose by 31% y/y in July, above forecasts
      • However, firms were still under pressure from rising energy prices, as well as further reports of heightened shipping prices and material shortages.
      • Despite this, business confidence remained firm that activity will grow over the next 12 months, though this was partly contingent on inflationary pressures moderating.
  • Retail trade sales decreased by 2.5% y/y in June, mainly dragged lower by general dealers.
    • This highlights the impact rising prices are having on consumers
      • Food, beverage and tobacco sales grew by 7.6%
      • General dealers grew by 7.0%
  • As a result, the central bank predicts the economy will contract in Q2 due to the floods in one of the biggest provinces and more frequent power outages.
    • Still, it raised its GDP forecast for 2022 to 2% from 1.7%.
  • South African government and labour unions are moving closer to negotiating an economic-growth pace
    • The government had asked for unions to agree to a pay cut and for companies to commit to investments.
    • However, these negotiations are set to continue especially after power utility company Eskom is said to increase wages by 7.0%, possibly setting a precedent for another round of talks.

Central bank

  • South Africa surprised financial markets by delivering its biggest increase in interest rates in almost two decades
    • It has also signalled a faster pace of hikes through next year.
  • The policymakers raised the interest rate to 5.5% from 4.75%
    • This aligns the South African Reserve Bank with other global central banks which are implementing one of the most aggressive tightening cycles to cool surging inflation.
    • The implied policy rate now indicates key rate will be at 5.61% by year-end and 6.45% by the end of next year.
  • The rapid tightening indicates the policymaker’s' urgency to quell inflation that continues to grow rapidly
    • Annual inflation rate reached 7.8% in July, way above the 4.5% midpoint target of the central bank.
    • It now expects both headline and core inflation to return to close to the target midpoint by Q4 2024.

USDZAR has been trading in the upper ranges of 16.00 in recent weeks, and we expect dollar strength to keep the rand at current levels. However, some strength could come from China, as it is a key buyer of South African commodity exports, after the nation took the most aggressive steps in its latest battle to bolster the yuan. Domestically, as a result of further inflation acceleration and higher cost of living, households are set to feel the burden, spurred by rising food and fuel costs which would result in lower household consumption, which accounts for about two-thirds of GDP.

Source: South African Reserve Bank, Statistics South Africa, S&P Global

USDZAR Vol comment

USDZAR Realised Volatility vs Implied spread has been wandering around an average of +/- 1% during summer. We expect this trend do invert in favour of further Dollar strength and with that adding pressure to EM markets, possibly prompting a spike in USDZAR Vols. We therefore favour buying directional Vol over the next month.

USDZAR 1-month Implied vs Realised Volatility

Realised And Implied (59)

Trade Idea

  • Trade idea in 1-month expiry (04/10/2022)

  • Buy USDZAR Call Spread, Low Strike 18, High Strike 20, in USD 5mio – Net structure premium pay circa USD 36K

Positioning Charts

USDBRL NDO Positioning Data 18/08/2022 - 25/08/2022

Positional data for USDCBRL in the week ending September 1st show a reduced appetite for calls and puts, with a lower number of contracts further away from expiry. A cluster has formed around 5.00-5.50, with a greater number of puts to calls around that region. There is a band of put and call options due to expire in the first weeks of November, which could give the BRL more traction in the long run and therefore see USDBRL weaken. Near term, momentum suggests we could see the pair weaken given the lower number of calls, but as we move towards the later expiries, BRL momentum could resume.

Usd Brl 18 25 (3)

USDBRL NDO Positioning Data 25/08/2022 - 01/09/2022

Usd Brl 25 1 (3)

USDCNY Vanilla Positioning Data 18/08/2022 - 25/08/2022

The options market for USDCNY has had a more lively week to week to September 1st. The option volumes have favoured the upside, with the call options spread between 6.90-7.30. There is a strong downside cover down to 6.70, but after that, put option volumes thin. The larger number of calls suggests we could see the market edge higher in the coming months; the 7.0 level is key as we see a large number of calls around that area.

Usd Cny 18 25 (1)

USDCNY Positioning Data 25/08/2022 - 01/09/2022

Usd Cny 25 1 (2)

USDZAR Positioning Data 01/07/2022 - 01/08/2022 

USDZAR saw the amount options grow in August, with the number of puts growing in notional size and quantity. The range is also wider, with options executed between 15.00-19.00. Calls were largely trading in the same range, but there is less cover above 19.00 in the month to September 1st. This could prompt the market to edge lower in the coming weeks. However, the market has corrected to the upside, and puts could be downside cover.

Usd Zar Jul Aug

USDZAR Positioning Data 01/08/2022 - 01/09/2022

Usd Zar Aug Sep

Charts and Tables

FX Expiries

Expiries (52)

Volatility Grid

Grid (48)

Historical Spot FX Volatility (30D Rolling)

Chart (14)

FX Matrix (today)

Spot (72)

Weekly Change

Week (54)

Key Events & Releases

Calendar (83)

Technical Analysis

JP Morgan Global FX Volatility 

 JPM VIX (3)

The index has improved in the recent weeks but has struggled to break above resistance at 11.40 and softened yesterday to 11.30. The stochastics are rising, with %K/%D diverging further into overbought, which means we could see a continuation of the trend before its reversal. The MACD diff is positive and converging highlights a looming selling pressure in the near term. The index needs to hold above the 50 MA at 11.11 before it can target 11.40 and 11.50. On the downside, the break below the 50 MA could pave the way for 200 MA at 10.87. All three moving averages have been broken above, but indicators point to further softness in the index in the near term, which could form the double top formation if it materialises.

Dollar Index 

 DXY (65)

The index was well bid, and this triggered gains through above last week, but resistance at 110 held firm, and the index softened to 109.32. The stochastics have converged on the downside and are now falling out of the overbought, and the MACD diff is positive and converging, suggesting growing selling pressures. The reaffirmation of resistance at 110 could trigger a break below the 50, and 100 MAs at 108.80 and 107.74 would help to confirm the lack of appetite above current levels. Conversely, a breach of resistance at near-term levels may prompt the bulls to target 111, the highs last seen at the beginning of 2002. The most recent gains have been strong, but yesterday’s weak candles and indicators point to a growing bearish momentum.



The pair rallied sharply in the last couple of sessions, breaching resistance at 16.50 and 17.00, and is now trading at September 2020 levels. The stochastics are diverging on the upside, with %K/%D rising further in the overbought, but the MACD is positive and converging, which suggests that the bull trend is losing steam. To suggest the outlook of higher prices, the index needs to break above the current levels and then target resistance at 17.40. Alternatively, if the index finds resistance at the recent trend can reverse down to 17.20 and 17.00 before moving average support. The appetite seems to have softened around the near-term resistance, and we could see a change of trend, and indicators suggest a similar outlook in the near term.



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