Bottom line:

  • Although the ZAR Sentiment Indicator (ZSI) is trading at levels last seen thirteen years ago, thus far, the ZAR has failed to respond in the manner predicted by the indicator. The reason is that the ZSI is an indicator that offers perspective nine months in advance. Nine months ago, the current phase of load-shedding was not envisaged, and the deterioration in sentiment was also not predicted.
  • Therefore, the ZSI does not reflect this in the predicted path. Furthermore, one questions the validity of the remaining path, given the intense nature of load-shedding. ETM acknowledges that the ZAR may perform differently until the market comes to terms with the full consequences of this load-shedding and what might happen through winter when the demand for electricity usually increases.
  • Nevertheless, as a barometer for hedging activity, it is important to note that this indicator reflects great reluctance by the professional market to hedge against significant further ZAR weakness from these levels. It is a sign that the ZAR is stretched and that there is a lot of bad news priced in.
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