Rand Faces More Manic Mondays as Japan Currency Romance Unwinds

  • Tokyo traders open interest in rand most after dollar, pound
  • Bets more than doubled as South Africa's currency sank in 2015

South Africa Rand Plunges as Much as 9 Percent

There’s more Monday morning pain to come for South Africa’s rand as Japanese retail investors are forced to end their romance with the currency, Macquarie Bank Ltd. says.

Open interest in the rand is the highest after the dollar and the pound for Japan’s individual traders, exceeding bets on high-yielders such as the currencies of Turkey, Australia and New Zealand, according to data on Tokyo Financial Exchange Inc.’s website. Positions more than doubled from June through December as the rand lost 24 percent against the yen. Most of the bets are probably on rand gains since the typical investing style in this sector is to be long currencies that offer higher yields and to wager that current price moves will reverse, said Gareth Berry, a strategist at Macquarie in Singapore.

“As we keep going through key levels, you’ll see Japanese retail getting stopped out and margin calls forcing them to cut their positions, so that’s where the risk lies,” Berry said. “We should brace for this type of price action, especially on Monday mornings, from now on and especially after the rand may have had a bad week.”

The South African currency sank more than 9 percent early Monday versus the yen and reached record lows against the dollar and euro as sell orders mounted and buyers fell away. The slide coincided with the opening of Japan retail trading platforms at about 7 a.m. Tokyo time, as the platforms work even on Japanese public holidays such as today, Macquarie said. The rand was 1.6 percent weaker at 16.5619 per dollar by 12:49 p.m. in Johannesburg.

Data compiled by Bloomberg showed that offers to buy the rand against the dollar dried up around 7:04 a.m. Tokyo time. The rand’s already dropped 10 percent versus Japan’s currency this year, after losing a quarter of its value in 2015. The currency has been rattled by a slump in commodity prices, lackluster economic growth and rising U.S. interest rates.

“Liquidity is at a premium at this time of the week anyway, it’s sort of a twilight zone first thing on a Monday morning so that certainly didn’t help,” Berry said.

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