Rand Retreat Spurs Drop in Futures as Market Stabilizes

Aug. 2 (Bloomberg) -- The rand’s retreat from near a four-year low at the start of July cut demand for hedging, reducing the value of currency futures traded last month by more than half, said a Johannesburg Stock Exchange official.

Trading in futures contracts plummeted 63 percent to 11.5 billion rand ($1.1 billion) in July from 31.4 billion rand in the previous month. The currency gained 2.7 percent from its lowest level of 10.2983 per dollar reached on July 8 to today, after falling to a four-year worst intraday level of 10.3692 on June 11.

South Africa’s currency depreciated 15 percent against the dollar this year, making it the worst performer among 16 major peers monitored by Bloomberg. Futures contracts worth 134.7 billion rand were traded in the year through July 31, compared with 66.9 billion rand during the same period a year earlier.

“Anything over 10 rand per dollar, you get the fear factor of people buying to protect not knowing where the dollar is going to go,” Warren Geers, the exchange’s general manager for bonds and financial derivatives, said by phone yesterday. “Now that it has dropped back, there’s confidence in the rand, more stability and less urgency to hedge.”

Open interest, or outstanding contracts, for all currencies and all durations declined to 941,728 by July 31, according to JSE data.

The rand weakened 0.6 percent to 10.0296 per dollar by 10:51 a.m. in Johannesburg, sliding for a sixth day and heading for a 2.6 percent drop in the week.

The generic three-month rand contracts traded 0.5 percent lower at 10.2903 per dollar yesterday, signaling investors expect a further depreciation.

To contact the reporter on this story: Jaco Visser in Johannesburg at avisser3@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net