Bloomberg News

Nomura Buys Dollar, Sells S. Africa Rand on Weakness Bets

June 08, 2011

(Updates with analysts’ comment in fourth paragraph.)

June 8 (Bloomberg) -- Nomura Holdings Inc. said it is buying dollars and selling rand on expectation the South African currency will weaken as signs of slowing global growth prompts investors to shed risky assets.

The Tokyo-based bank is buying dollars at 6.76 rand, with a target of 7.35 rand and a stop loss at 6.55 rand as a one-month trade, Nomura analysts led by Peter Attard Montalto said in a note e-mailed to clients. The rand declined as much as 0.9 percent to 6.7738 per dollar today, and traded at 6.7256 at 6:28 p.m. in Johannesburg.

The rand has rallied 16 percent against the dollar in the past year as the nation’s 5.5 percent benchmark rate lured investors seeking higher yields. Deposit returns as low as 0.25 percent in the U.S. and 0.1 percent in Japan have made South African assets popular purchases for so-called carry trades, which involve borrowing money in countries with low interest rates to invest in markets offering higher returns. Even so, the rand tends to weaken more than its emerging-market peers when investors sell risky assets, the analysts wrote.

“Of late there have been some signs of deteriorating risk appetite globally,” the analysts wrote. “We believe the risk reward of using the rand as a relatively clean risk proxy to have an opportunistic long dollar position looks quite compelling.”

The South African currency’s three-month implied volatility is 14.8 percent, the second-highest among more than 20 emerging- market currencies monitored by Bloomberg after Poland’s zloty. The measure suggests currency options traders expect the rand to swing by as much as 14.8 percent in the next year.

“We are allocating $3 million to this trade, which is around one-third of our usual high confidence size, which gives some indication of our level of conviction,” the Nomura analysts wrote. “As things currently stand we are not looking to double the trade at any particular level.”

--Editors: Ana Monteiro, Linda Shen

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


Cash Is for Losers
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus