1. FX Outlook
  2. FX Options Weekly

Macro and Vol Commentary

The rand benefitted from the dollar's softness by the end of the year, with USDZAR declining below 17.00. However, given the exacerbating concerns surrounding the growing energy shortages in the economy and the central bank meetings for both economies in the coming weeks, what is the outlook for the pair in the near term?

South African economy and energy crisis

  • Economic performance is moving in a trajectory that we have seen in other developing economies
    • GDP performance strengthened in Q3 2022, growing at 4.1% y/y.
    • Manufacturing production has improved slightly, growing by 2.0% m/m
      • While the most recent growth has been positive, y/y performance remains negative at 1.1% due to persistent blackouts in the country.
  • Most of the recent m/m growth is primarily driven by the softness that we have seen in producer and consumer prices 
    • CPI slowed to 7.3% in December, and while down from 7.80% in July, the pace of the decline is behind those seen in the developing nations. 
    • This is partly attributed to the composition of the CPI performance, which saw the biggest growth come from diesel, at 46.8%.
      • While this softness might be beneficial from the consumer standpoint, SA, which derives 30% of its GDP growth from exports, will also see exporting revenues decline as a result. 
      • We expect that CPI will continue to ease in January reading. Still, with February's colder temperatures in Europe, and China's rebound following the national holiday, energy might cause a leg higher. As a result, CPI might edge slightly higher by the end of the quarter.
      • Two-year-ahead inflation expectations have increased to 6.1% as Eskom has already approved raising electricity prices by 19% for the 2024 fiscal year. 
    • At the same time, core inflation remains upwardly sticky, increasing to 5.1%. 
  • The are, however, growing concerns surrounding energy security in the economy
    • Load shedding frequency and magnitude have increased to the worst-ever level at the start of the month, meaning most South Africans are without power for at least 6 hours a day and more. 
    • While concerns are easing slightly, given the introduction of 14 generators to come back on tap this week, the uncertainty surrounding the energy sector will continue to drive rand volatility and weakness against the dollar in the meantime.
    • The fact that the currency breached the psychological level of 17.20 means that the energy move is severe and will take centre stage in the near term.

Central Bank

  • Given the upwardly revised inflation expectations, we expect the SARB to continue raising interest rates, however, the scale of the growth is much smaller than during the previous meetings.
    • The CB began to hike rates by the end of 2021, which is much earlier than other developed central banks, with the size of the increments increasing to 75bps in the latest two meetings, causing the terminal level to reach the levels last seen in 2017
    • We expect the scale of the hikes to drop, leaning closer to a 25bps hike.

USDZAR edged lower in recent months, but the rand failed to take full advantage of the weak dollar environment, given the performance between the two diverged. The rest of the EM currencies have also been suffering from weakness, despite a softer dollar, but the rand is paving the way for that weakness. Apart from the weaker greenback, the South African economy faces complex issues surrounding its energy sector. As the intensity of the energy crisis wanes, the USD should remain the key driving force behind the currency movement. However, until the key Fed decision in early February, the mixed economic environment, and SARB expectations of easing on the pace of tightening, we expect USDZAR to gain into the resistance of 17.30 and 17.50, respectively. 

Sources: S&P Global, South African Reserve Bank, Statistics South Africa, South African Revenue Service 

Volatility Commentary

As discussed above we’ve recently seen a pullback in USD strength and over the Christmas period we’ve seen vols realise below implied vols. Though with the above mentioned energy shortage concerns and CB meetings ahead we favour positions that benefit from USDZAR moves up alongside vols increasing in parallel.

USDZAR 1-month Implied vs Realised Volatility

Implied Vs Realised (6)

USDZAR Trade Idea

  • Buy Call spread vs Sell Put spread in 3mth expiry, 10m a leg
  • Call spread with 17.50 & 18.00 for an upfront premium cost of 98k USD
  • Put spread with 17.10 & 16.80 for an upfront premium receive 70k USD
  • Total upfront premium cost 28k USD

Positioning Charts

USDBRL NDO Positioning Data 03/01/2023 - 10/01/2023

USDBRL options range widened significantly in the week ending January 17th, with fewer contracts expiring in the coming weeks. A few calls are seen expiring in the last week of January; however, consequently, the number of puts is set, increasing with the cover all the way to 4.70. The size and frequency of the notional remained broadly unchanged, confirming the prevailing appetite in the market; however, the wider trading range suggests uncertainty surrounding the pair outlook in the near term.

Usd Brl 3 10 (3)

USDBRL NDO Positioning Data 10/01/2023 - 17/01/2023

Usd Brl 10 17 (3)

USDCNY Vanilla Positioning Data 03/01/2023 - 10/01/2023

USDCNY options saw the range tighten into 6.0-7.0 in the week ending January 17th, as both upside and downside cover diminished from the previous week. The notional size has fallen for both puts and calls, but the number of puts is greater and is concentrated to have expired this week. Most of February trading is seen quieter due to the national holiday season, and markets are betting on the pair to strengthen, with the number and the size of notional calls expiring in March.

Usd Cny 3 10 (3)

USDCNY Vanilla Positioning Data 10/01/2023 - 17/01/2023

Usd Cny 10 19

USDZAR Vanilla Positioning Data 17/11/2022 - 17/12/2022

USDZAR range tightened in the last month, but the size of the notional increase suggests increasing conviction for prices in the 16.50-18.50 range. The number of both puts and calls to expire in the near term is equal and is seen diverging out of the tight range further into the quarter as appetite wanes. There is a greater upside cover, with call futures going as high as 21.50, while the number of puts is set to expire in the coming weeks. We expect the pair to remain in the current range before gaining a slight upside in the longer term.

Usd Zar Nov Dec (1)

USDZAR Vanilla Positioning Data 17/12/2022 - 17/01/2023

Usd Zar Dec Jan

Charts and Tables

FX Expiries

Expiry (34)

Volatility Grid

Grid (58)

Historical Spot FX Volatility (30D Rolling)

Chart (27)

FX Matrix (today)

Spot (85)

Weekly Change

Week (66)

Key Events & Releases

Calendar (99)

Technical Charts

JP Morgan Global FX Volatility 


The index continued to remain range bound, as it fluctuated around the moving average levels in recent weeks. Stochastics were seen jumping higher, but momentum is slowing and could signal that the index is struggling above 10.50. The MACD diff is positive and diverging, suggesting we could see further moderate gains on the upside before a trend reversal. We expect the upside levels to hold firm, capping bullish momentum. This, as a result, could trigger a reversal back to 10.30 and 10.00, respectively. On the upside, moving averages are also supporting prices from the upside, at 10.54 and 10.65, respectively. We expect the recent upside gain to stall in the near term as the futures struggle above 10.50 and, subsequently, soften. 

Dollar Index 


The dollar index continued to decline, falling below the support of 103. The longer-term trend has been on the downside for months, and, in recent trading sessions, the index struggled to break the support of 102 as prices continued to test this level. The indicators confirm the uncertainty about breaking out of the current range in the near term, with %K/%D fluctuating between gains and losses, as MACD diff struggled to break into the negative territory. The indicators suggest that there is a diminishing appetite for lower levels in the meantime, but resistance at 50 DMA, currently at 102.54, is narrowing, creating pressures from the upside. If the longer-term downside trend is to persist, then we could see the index test 101.03, the April low. Alternatively, a break above the 50 MA level at 102.54 could trigger gains to 103 and 100 MA at 103.35, respectively. We expect futures to remain supported by the 102 level in the meantime. 



The pair gained a footing above the moving average resistance levels in recent days, breaking above 17.20 to test the 17.30 level. Prices have struggled above this level in recent days, and the indicators confirm looming downside pressures. The stochastics have sent a sell signal, with %K/%D converging on the downside and now falling out of overbought. Likewise, the MACD diff is positive and converging, suggesting growing downside momentum. To confirm this, the pair must break back below the 200 MA at 17.14 before 17.00. A break of 50 MA above 100 MA, a golden cross, is a strong buy signal and could provide strong support for the pair. We expect the pair to soften in the near term and find support at the shorter-term moving average levels. 



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