SA risk measure at record lows as Trump fears ease

A risk gauge for the rand fell to record lows after US President Donald Trump said he’d prefer not to have to impose tariffs on China, South Africa’s largest trading partner.

The premium between options to sell the currency versus the dollar over the next six months and those to buy it — known as the 25 Delta risk reversal — fell to 1.75 basis points this week, the lowest on record going back more than two decades, suggesting that market sentiment toward the rand is improving. The currency, often a proxy for risk sentiment due to its liquidity, is among the best performers in emerging markets this year.

The “mercurial temperament of President Trump is a major factor that could potentially pause the unwinding of bullish bets on the dollar, which look even more stretched following his latest remarks,” said Piotr Matys, a senior FX analyst at InTouch Capital Markets.

However, a sudden shift back toward confrontation could cause tariff concerns to resurface, “which in turn would be supportive for the dollar,” he said. Matys said investors want to reduce their dollar exposure as it is impossible to tell if or when Trump will make such a shift.

Bloomberg’s forecast model, based on options pricing, assigns a 72% chance that the rand will trade above 19 or below 17 per dollar by the end of the first quarter. It is up 2.31% this year against the greenback.

Trump’s comments on Thursday led the dollar to weaken as they could imply less US inflation — a positive for the rand, as anything that is bad for the Chinese economy is usually bad for South Africa as well. A dollar gauge fell 0.4% by 2:24 p.m. in Johannesburg.

Mike Keenan, a fixed-income strategist at Absa Group in Johannesburg sees tariff fears becoming less acute. This “justifies some ZAR short covering and explains why investors have a reduced need to hedge themselves as aggressively against ZAR weakness in the options market” he said. The rand rose 0.74% as of 2:23 p.m. in Johannesburg, heading to its strongest level in over a month.

“There is a lot of volatility in US policy right now and therefore in the USD and that obviously effects volatile currencies like ZAR,” Commerzbank AG analyst Volkmar Baur said. A potential move by the country’s central bank next week to lower rates again “should be ZAR positive as it reflects structural improvements,” Baur said.

The fall in perceived risk comes amid optimism that the so-called government of national unity will steer South Africa toward stronger growth and boost tax receipts, said Manik Narain, head of EM strategy research at UBS Group AG’s asset management arm.

The rand also benefited after South African inflation data on Wednesday showed a 3% increase in December, less than expected. That is providing policymakers with room to cut interest rates when they meet on Jan. 30. “I think that’s a clear sign that the FX market is pricing out tail risks of ZAR depreciation,” Narain said.

© 2025 Bloomberg

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