Rand’s speedy recovery rally caught some traders by surprise
The rand’s rapid turnaround from April’s record low has already burnt some traders’ fingers. There may be more victims, judging by the discrepancy between forecasts for the currency and its actual level.
TD Securities’ long-dollar-rand trade, opened on May 21 at 17.92 per dollar, was stopped out just eight days later when the currency strengthened below 17.45, handing the position a 2.6% loss. The trade was entered on expectations that easing by the South African Reserve Bank would hurt the attractiveness of the currency – but the opposite happened.
The bearish predictions were not limited to TD. Analysts in a Bloomberg survey see the rand reaching 18.95 per dollar in the second quarter – implying a decline of around 8% from Friday’s level of 17.50 per dollar. The probability of the rand weakening that much by the end of June is less than 10%, according to Bloomberg’s forecast model based on prices of options to buy and sell the currency.
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