Wrong Footed on Rand
The South African Reserve Bank conducted its latest monetary policy decision last week. Despite a near-unanimous expectation amongst economists for a 25-basis point hike, the SARB delivered a ‘hold’ decision. With many forecasts having previously implied significant upside potential for the Rand this year, the decision to hold benchmark rates at 7% drove significant open interest out from the currency. Adding fuel to the fire, the SARB revised its inflation forecast lower to 4% (down 0.4%), despite revising growth modestly higher.
Taking the title for its second worst performance of the year, the Rand plunged following the SARB decision. USDZAR rallied by as much as 2.9% on the day before some dip-buying normalised the Rand to close 2.38% higher than its opening price. One bank hoping to benefit from rising interest rates in South Africa was Citi bank. Citi published it had recently taken a position of notional size ≈$22 million, betting the Rand would appreciate against the Euro. It entered that position at spot level 18.79, closing it on Friday at spot reference 19.19, a $468,334 (2.13%) loss on the trade.
This is an example of a big player in the FX space being wrong footed on a high conviction call. Emerging market carry trades have been one of the best performing strategies of 2026. Emerging market currencies of note have been the Brazilian Real as well as the Colombian and Mexican Pesos, whose high level of interest have attracted unhedged forward buying. At the start of the year, such positions were funded against USD. However, building sentiment behind the US Dollar thanks to a change of flavour amongst Warsh’s Fed and growing inflationary pressures have seen such trades increasingly funded by the Euro. Citi’s bet that the Rand would join this esteemed group left it with a half a million dollars’ worth of egg on its face. USDZAR 17.00 appears to be an area of significant buying interest. Despite limited technical resistance, this level is the next obvious hurdle for the gravity defying currency pair.
Discussion and Analysis by Charles Porter
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