What is(n’t) Going on in the Rand?

Dealers are talking about an interesting,
and for the foreign exchange market, unusual, reaction to the latest political
upheaval in South Africa.

News that finance minister Pravin Gordhan
had been summoned to be interviewed by police saw a sharp move higher in
USD/ZAR yesterday that had the pair peaking out after an 85 big figure move at 14.30, before drifting lower
as Gordhan announced he would not submit to the police and had no legal
requirement to do so.

Gordhan’s summons is seen as the latest blow in a long battle on the part of South Africa’s prime minister Jacob Zuma to oust the experienced and popular finance minister.

Asian markets opened with USD/ZAR at 14.16
and dealers braced for a very volatile session in what is one of the more
dangerous currency pairs to trade in Asian hours. In January of this year,
USD/ZAR saw an event in Asia leading to
a 170 big figure move
, and this was just the latest in a series of sharp
moves, with large gaps, in ZAR in Asia.

With this background then, traders were
probably right to be nervous as this morning’s session opened.

Nothing happened however, and when we say
nothing, we mean nothing. Dealers report “a fraction” of the amount of trades
usually executed in ZAR, one dealer in Singapore saying they had executed one
trade in the morning session. Platform sources say that less than 10 trades
went through in the first five hours of the session, a remarkably low number
according to one source.

One dealing source suggests the spreads on
offer were one factor – banks were apparently offering 500 point spreads on
relatively small amounts, compared to the 30-50 points normally offered in Asia
– but points out that when a currency pair is prone to move in excess of 50 big
figures on relatively nothing, a five big figure spread is still worth trading.

“It’s like the foreign exchange market just
gave up,” the dealing source says. “Normally you would see a bit of
speculating, especially from retail players in Japan, but today – nothing. It
was extraordinary, I’ve never seen a market this quiet, especially when there
is the chance of something big happening, it’s like people don’t know what to
do and for the first time that I can remember, they are actually doing

Although USD/ZAR is a notoriously volatile
currency pair in terms of volume as well as price action, today does seem to
have been a very strange one even though sources say volumes are lower than
usual across the board.


Twitter @lamboPnL

Twitter @Profit_and_Loss

Colin Lambert

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