Rand facing 9% drop in worst monthly performance in over two years

The rand is behaving more erratically this month than it did during the height of the power struggle between former President Jacob Zuma and current President Cyril Ramaphosa in December.

The notoriously volatile currency has traded between R13.18 and R15.55/$ during August amid thin liquidity, with many northern-hemisphere market participants on summer vacation.

This week alone, it dipped below R14/$ on Tuesday after a report on the land reform process briefly cheered traders. But by Thursday, it had weakened beyond R14.50/$ as concerns over Turkey and Argentina weighed on emerging-market currencies.

Highest since December

The rand’s one-month historical volatility is now at its highest level since December 2016, and the currency is headed for its worst August performance against the dollar on record, on track for a 9% drop. This would also be the worst monthly performance in more than two years.

On the other hand, the rand’s implied volatility, based on options to buy and sell the currency, has moderated from a seven-year high, suggesting traders expect price swings to narrow in coming weeks. But traders may be too sanguine: the risks that helped spark the sell-off in the currency this month, including the land issue, show no signs of abating, a gauge by GeoQuant shows.

"The rand will remain vulnerable to both fragile local and global sentiment," Zaakirah Ismail, a fixed-income strategist at Standard Bank Group, wrote in a client note dated August 27.

"Local policy uncertainty will likely persist until the South African national elections next year."

The currency slumped as much as 2% on Thursday and traded 1.9% weaker at R14.6253/$ by 15:00 in Johannesburg. By 15:48, the rand was trading at R14.63/$.

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