Rand misery just got worse with carry appeal sinking to 2008 low

Now there’s another reason to avoid the rand: vanishing carry trade returns.

For every dollar borrowed and invested in the currency, traders have already lost 25 cents this year. And a forward-looking measure of carry-trade potential suggests they have little chance of recouping their investment anytime soon.

Implied carry in the rand - expected interest-rate returns adjusted for volatility over the next month - has fallen to the lowest level since 2008. Investors are unable to take advantage of a slight moderation in rand swings as currency forwards signal a deterioration of 306 basis points in absolute returns since April 3.

The worst-performing emerging-market currency is taking a knock from aggressive easing by the central bank in response to an already-existing economic crisis worsened by the coronavirus epidemic. Policy makers have reduced the repo rate by 225 basis points this year to mitigate an inevitable recession.

A currency trading near its weakest-ever level, combined with interest rates at record lows, is hardly a recipe for carry trades. Resurgent inflation has left the real yield at a negative 0.35%, eroding the currency’s appeal to local investors.

What’s more, the prospect of a 6.1% economic contraction this year and expectations for further rate cuts of 125 basis points have all but drained the rand’s appeal to arbitrageurs.

ZAR/USD
17.00
(-0.09)
ZAR/GBP
21.24
(-0.12)
ZAR/EUR
19.14
(-0.13)
ZAR/AUD
11.81
(-0.13)
ZAR/JPY
0.16
(-0.20)
Gold
1774.74
(+0.03)
Silver
18.05
(+0.01)
Platinum
808.00
(+0.25)
Brent Crude
42.78
(-0.79)
Palladium
1914.01
(+0.62)
All Share
54521.90
(-0.17)
Top 40
50179.89
(-0.26)
Financial 15
10150.02
(-0.64)
Industrial 25
76554.73
(+0.52)
Resource 10
50138.02
(-1.24)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
I'm not really directly affected
18% - 1592 votes
I am taking a hit, but should be able to recover in the next year
23% - 2083 votes
My finances have been devastated
34% - 3123 votes
It's still too early to know what the full effect will be
25% - 2255 votes
Vote