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Macro and Vol Commentary

We have seen the USDZAR weaken in recent months, despite the Ukraine conflict and pressure on Emerging Markets. Can this continue?

Economic Data

  • Manufacturing PMI increased in February to 58.6, from 57.1 in the previous month. New orders and output continued to rise as the economy recovered from the COVID-19 slump. The sequential data shows a boost to the manufacturing industry, and this should be prolonged as employment rises.
    • However, we expect growth to moderate in the coming months as the gains are more menial. Forecasts indicate that the PMI will reach 56.90 by quarter-end.
    • Manufacturing production grew slower in January at 1.9% M/M, compared to a revised 2.5% the month prior.
    • The year-on-year figure is 2.9% in January; once again, we expect this data to moderate in the coming months.
  • Mining production is increasing month-on-month, reaching 5.4% in January, up from -5.5% in December, but COVID restrictions will impact this. On a year-on-year basis, mining production will increase once again, and we are seeing that in gold production, which gained 7% in January Y/Y.
    • Platinum production has been slower to react, with January data indicating a -2.9% decline Y/Y, down from 24.4% prior.
    • Higher prices for gold and platinum should prompt more mining activity, especially with gold margins favourable for miners.
    • Platinum workers are set for wage talks next week, and the tough working conditions and higher prices indicate they want more pay. This could lead to a strike reducing mining.
  • GDP in Q4 2021 was 1.7% Y/Y, down from 2.9%, expectations for 2022 stand at 1.7%. There are headwinds to this, with the high inflationary environment, rising interest rates, and geopolitics.
  • In January, electricity production and consumption were weaker at -1.1% Y/Y and -0.2% Y/Y, respectively. Energy costs have risen for Eskom because of the coal outages we have seen; this increased costs by $1.4bn.
    • This could cause electricity production to suffer in the near term, causing power cuts.
    • According to Bloomberg, Eskom’s debt will likely increase to 416bn ZAR by the end of this month.
    • Eskom’s latest projection suggests 12-13,000 megawatts are unavailable; this would mean 25 days of power cuts, which is conservative with 36 days of power cuts are a possibility.
    • This is a certain headwind to GDP, and the economy needs to see the expenditure reach the necessary level to reduce the risk of power cuts.
  • CPI Inflation was 5.7% in January, with the M/M rate rising 0.2% M/M.
    • The conflict in Ukraine has prompted commodities to rise, energy and food have will be painful for all economies and South Africa.
    • Food is one that they can’t avoid, but the economy will benefit from higher resources and metal prices.
    • These higher input costs will be passed onto the consumer, and we expect inflation to rise significantly from 5.7%
    • Higher energy prices are key for South Africa, and we expect prices to remain around $100/bl in the near term; even though prices are off the highs, the current price environment will provide pain for consumers.
    • Supply-chain fragilities due to China’s zero tolerance for COVID could compound inflationary problems.
  • The employment market is behind the curve, and the latest data shows Q3 unemployment at 34.9%, 7.6m are out of work.
    • Employment between 15-24yrs and 25-34yr was 66.5% and 43.8% respectively, about 3.4m people out of 10.2m young people aged 15-24yrs nor in employment or education.

Central Bank

  • The yield curve is steepening as inflationary expectations rise; the 5yr and 10yr yield is at 7.010% and 8.02%, respectively (last as of 16/03).
  • We expect rates to rise in the near term because of inflation. We could see 150bps between now and the end of 2023. We hope 25bps at each meeting out to September.
  • This will help cause flows into the ZAR, but the Fed rate hikes and most South African are now priced in.
  • Even if peace talks are successful, sanctions will remain intact, and this could keep prices for commodities higher, and therefore inflation.
  • We expect the central bank to be hawkish in the near term, but most of this is priced in. A more aggressive rate hike path could lead to more inflows in the currency as investors hunt for yield.

USDZAR has weakened this year, but this is largely due to its undervalued in Q4 2021 due to its response to COVID and variants. In conjunction with the economic rebound from South Africa, the higher rate environment has caused ZAR to rally. Fed raising rates will be priced in, but any language surrounding asset purchases and future rates could provide some tailwinds to the USD in the near term; we do not expect a market shock. The economy is expected to recover following COVID, and this will benefit ZAR; higher commodity prices should benefit the trade balance in 2022. However, electricity consumption and production are a key headwind to the economy and inflation. While there is little immediate exposure to US treasuries, the EM basket may suffer from the higher rate environment. We expect further long-term investment in Africa and South Africa from China, which could accelerate if ties with Russia continue to be strained. The market needs to close below 15, a critical level in recent weeks, and we favour selling rallies in USDZAR. A near term target could be 14.80 at this point, and we are not so bullish on ZAR. Following the Fed, we expect ZAR to confirm the descending triangle.

Volatility Commentary

In spite of the hit suffered by ZAR as a consequence of the spread of COVID and its variants, USDZAR has been strengthening since Q4-21 due to the economic rebound post-pandemic and higher commodity prices. Volatility-wise, 1-month Volatility has constantly been realising lower than the implied (IV) over the past 6 months. The spread between realised and implied volatility (i.e., as difference between 1-month Implied Volatility and 1-month Realised Volatility) has in fact peaked to circa 6% in December 2021, ranging between 1.5% and 4% thereafter. This has subsequently narrowed as a result of Russian invasion of Ukraine, however stabilising to 1.5% lately. We expect this pattern to continue in light of the current Macro landscape, and favour selling rallies and Volatility in USDZAR.

USDZAR 1-month Realised and Implied Volatility

USDZAR Trade Idea

  • Trade idea in 1 month expiry
  • Buy USDZAR Put in USD 2mio, Strike 14.95, Pay USD 34.5K circa
  • Sell USDZAR No-Touch in USD 150K, Barrier 15.2, Rec USD 87K circa
  • Total structure premium receive circa USD 52.5K

Positioning Charts

USDBRL NDO Positioning Data 03/03/2022 - 10/03/2022

Options executed in the week to March 17th shows continued favour to the downside, with a greater number of put options traded than calls. The range is similar to the previous week on the downside, there were more options traded with expiries in July at a strike below the market. The notional value is large and this indicates greater conviction in the market. There is still moderate upside cover, but we anticipate prices to trade between 5-5.10 in the immediate term. 

USDBRL NDO Positioning Data 10/03/2022 - 17/03/2022

USDCNY Vanilla Positioning Data 03/03/2022 - 10/03/2022

There is little pattern for options traded in the week to 17th March. Indeed, there were considerably more call options traded, upside exposure has been increased. The range on the upside has widened to 6.70, there is a strip of options that have been traded which is due to expire in April. Some of these options hit the upper end of the range. There is little downside cover in the near term. 

USDCNY Vanilla Positioning Data 10/03/2022 - 17/03/2022

USDZAR Vanilla Positioning Data 17/01/2022 - 17/02/2022

Options traded show little upside cover in the month to March 17th, this shows significant downside pressure to the pair. The put options trade a similar range to the previous month between 14-15 and remains a strong cluster of options in the near term. We expect the market to trade lower and the ZAR to gain. The little number of calls suggests a move higher would cause strong upside cover. 

USDZAR Vanilla Positioning Data 17/02/2022 - 17/03/2022

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change

Key Events & Releases

Technical Analysis

JP Morgan Global FX Volatility 


The index has strengthened in the last couple of sessions but struggled to break above the key resistance of 100 MA at 9.12. The stochastics are seen diverging on the upside into the overbought, and the MACD diff just flipped into the positive territory, a strong buy signal. To confirm the indicators, the index needs to break above 100 MA before testing 50 MA at 9.40. On the downside, a fall below trend support at 8.98 could prompt a test of 8.50, which would indicate the breakout out of the pennant formation. The indicators point to further upside momentum, but the index needs to break above 100 MA to confirm this.

Dollar Index 


The dollar index has been gaining in the recent sessions, prompting a test resistance at 99.29 this month, creating a double top formation. The resistance at this level prompted a decline in recent sessions, but trend support capped the downside momentum at 98.30. The index has now found itself trading between 100 and 50 MA levels of 98.19 and 98.53, respectively. The indicators point to a converge of upside momentum, with %K/%D seen converging on the downside, and MACD diff being positive but seeing slowing upside momentum. To confirm the change of trend, the index needs to break below 100 MA support level before targeting 98.00 and 200 MA at 97.04 in the longer term. Alternatively, the resistance at 50 MA is seen converging, tightening the range the index can trade in. If this level is broken through, we could see further upside momentum to 99.00 before 99.29. Smaller candle bodies and the indicators point to growing downside impetus in the near term.



USDZAR has continued its longer-term trend on the downside; however, it stayed within the range of trend resistance and support. More recently, the pair broke below 15.00 level but found support at trendline of 14.86 to come back to trade at 14.90 today. The stochastics are declining, with %K/%D diverging on the downside, and the MACD is positive and converging, suggesting that recent resistance of 50 MA at 15.02 is to hold and the pair is to edge lower back to trend support, now at 14.85. If this level is broken, this could set the scene for a fall towards 14.73. However, if the trend support is to hold, we could see the market rebound back to 50 MA before 15.10 and 100 MA at 15.18. The MAs are creating strong bands of resistance, and the indicators point to further downside momentum in the near term, however, we do not see the paid breaching trend support as of yet.



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