1. FX Outlook
  2. FX Options Weekly

Macro and Vol Commentary

The rand has weakened more than 8% since the start of the year, making it one of the worst-performing major currencies. With inflation reading ticking higher month-on-month, what is the outlook for USDZAR in the near term?

South African Economy

  • Africa’s most industrialised economy continued to show signs of a slowdown in recent months, given the severe power outages.
    • Q4’22 GDP growth came in lower, at -1.3% q/q, and Q1 figure likely to have pointed to a technical recession.
    • With state utility Eskom continuing to implement severe blackouts this year, the outages prompted the IMF to cut its 2023 economic growth forecast to 0.1% from 1.2%.
    • Manufacturing production came in lower than expected, falling by 5.2% vs 3.7% y/y a month before.
    • Even services, the sector that saw improvements across many regions, struggled to see any change of activity in March, pushing the composite PMI reading into contractionary at 49.7.
  • At the same time, inflation jumped higher in March, growing at 7.1% y/y, up from 7.0% a month earlier.
    • Food and non-alcoholic beverage inflation accelerated by 14%, the biggest increase since 2009.
    • This puts the South African Reserve Bank (SARB) further away from the price growth expectation of 4.5%.
      • As a result, the rand weakened, but the yields rose by 5bps to February 2022 high, as the markets have priced in another 25bps hike from the central bank during next month’s meeting.
  • South Africa increased interest rates by 50bps in March, above the expected 25bps, delivering a total of 425bps of tightening since November 2021.
    • The SARB believes the decision was justified in light of recent data but stated that this could not preclude further steps if inflation and inflation expectations continue to increase.

Power Rationing

  • Moreover, severe power rationing and logistical networking constraints continue to weigh heavily on economic performance.
    • The country was subject to further blackouts for all but one 24-hour cycle this year.
    • The severity is set to increase during the South African winter in the coming months, starting from June.
    • These impediments are likely to keep input costs elevated over the longer run, supporting the inflation stickiness narrative.

South Africa faces further pressures from higher inflation forecasts, downgraded GDP expectations, and the global risks from tighter financial conditions in the short term. Prices data meanwhile suggested that the country could face another wave of inflation. Some improved sentiment is seen from improving sales that are now picking up following the recent slump, but confidence levels are set to remain historically low in the coming months. While higher price growth would usually mean tighter monetary policy conditions from SARB, an effect that has traditionally pushed local currencies higher, these gains are now translating into a weaker economic picture. Even with the dollar low at the 100 level, it will struggle to lift the local currency higher in the near term. Our outlook for USDZAR is to target 18.50 and 18.70, respectively.

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

Volatility Commentary

1 month implied volatility for April is at 14.245, coming off a month high of 14.65 VOLS, we believe this may persist until the next fed meeting. Given that implied vol is cheaper relative to a month ago, this presents an opportunity to buy vol. Moreover looking at the risk reversals, which is simply the difference between the implied volatility of out of the money calls and the out of the money puts. The market is currently showing a positive risk reversal meaning the implied volatility of the calls is greater than the implied volatility of similar puts, which implies a positive skew distribution of expected spot returns. This further supports our view that the market could potentially rally within the next month. 

USDZAR 1-month Implied vs Realised

Implied Vs Realised (12)

USDZAR Trade Idea

Bull Call Spread

  • BUY USDZAR CALL at strike 18.06
  • SELL USDZAR CALL at strike 18.5
  • Notional at 10mio USD
  • Expiry 2 months, 22/05/2023
  • You pay Circa 100k spot ref 18.028
  • Potential payoff: 237K if spot expires around 18.50

Positioning Charts

USDBRL NDO Positioning Data 06/04/2023 - 13/04/2023

USDBRL option positioning saw volumes reduce slightly in the week ending April 20th, as the number of puts and calls increased, suggesting a lack of strong conviction down the curve. The range remained broadly unchanged, but the near-term tightened into 4.70-5.20, with the highest number of calls, suggesting marginal appetite on the upside. In option expires taking place in May; however, the size and number of puts are seen growing, suggesting a potential change of trend on the downside.

Usd Brl 6 13 (1)

USDBRL NDO Positioning Data 13/04/2023 - 20/04/2023

Usd Brl 13 20 (1)

USDCNY Vanilla Positioning Data 06/04/2023 - 13/04/2023

USDCNY option positioning widened in the week ending April 20th, with both upside and downside cover seen growing. The near-term range remained broadly unchanged. Upside cover is seen slightly tighter than on the downside, especially in the near term, suggesting markets see 6.90 as a robust resistance level. A wider range indicates greater uncertainty for moves out of the current ranges, and the picture remains cloudy further down the curve.

Usd Cny 6 13 (2)

USDCNY Vanilla Positioning Data 13/04/2023 - 20/04/2023

Usd Cny 13 20 (3)

USDZAR Vanilla Positioning Data 20/02/2023 -20/03/2023

USDZAR's positioning saw momentum shift slightly on the downside in the month ending April 20th, as the number of calls reduced and the number of puts increased, respectively. At the same time, the range tightened slightly in the front end of the curve, suggesting greater conviction for current levels. Further down the curve, the size and number of call options are slightly better than those of calls, highlighting some appetite for higher levels.

Usd Za Feb Mar

USDZAR Vanilla Positioning Data 20/03/2023 - 20/04/2023

Usd Zar Mar Apr

Charts and Tables

FX Expiries

Expiries (60)

Historical Spot FX Volatility (30D Rolling)

Chart (39)

FX Matrix (today)

Spot (97)

Weekly Change

Week (78)

Key Events & Releases

Calendar (110)

Technical Charts

JP Morgan Global FX Volatility 


The index continued to weaken in recent days but found support at 9.11, and the index is now seen trading slightly above this level. At the same time, a breach of longer-term moving averages in recent weeks highlights the recent downside conviction. The indicators point to the index being heavily oversold and with %K/%D diverging on the downside, suggesting we could see further softness before momentum change. The MACD confirms this, as it is positive and converging. To confirm the acceleration of the downside trend, the index needs to break back below the 9.11 level before testing the 9.00 level. Alternatively, if the index was to find support at current levels, we could see the index retest the 10 MA at 9.42. The indicators point to a continuation of downside momentum in the near term, but with them being oversold, we expect this appetite to slow.

Dollar Index 


The index found support at 100.82 recently and has traded slightly higher since then. The upside momentum, however, was capped by short-term term moving averages, causing the index to trade sideways, slightly below the 102 area. The indicators point to a growing upside momentum: the %K/%D is seen diverging on the upside. The MACD diff is negative and is about to converge on the upside, suggesting a strong conviction for higher levels. To suggest this momentum, the index first needs to break above the 100 MA level at 101.94. A break above this level could signal further upside to 102 before 102.86, the 200 MA. Alternatively, if trend resistance holds, a breach of 50 MA at the 101.73 level could set the scene back to 101 and 100.82, the recent support level. We expect some moderate upside in the near term but for the moving averages to cap any strong momentum.



The pair found support at 18.00 in recent days, forming a double bottom formation. This suggests that this support level is holding firm, and we could see further upside. The indicators confirm this, with %K/%D diverging on the upside out of the oversold, and the MACD diff is about to converge on the upside, a strong buy signal. To confirm the change of trend, the pair needs to break above the longer-term moving averages, which are now trading at 18.20 before 18.40. Alternatively, if moving average levels hold, we could see the pair test the 18.00 level once again. The indicators point to a sharp trend reversal in the near term, and to confirm this, the pair needs to break above the resistance at moving averages first.



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