ZAR Sentiment Indicator Points to Consolidation Amid Low Volatility

Key points

• ETM’s ZAR Sentiment Indicator (ZSI) has remained in positive territory for the past year, recently dipping marginally below zero, suggesting the ZAR should remain relatively well supported over the next eight to nine months. With local funds comfortable with offshore exposure and lacking a clear catalyst, the ZAR is set for consolidative trading.
• FX volatility has compressed to its lowest level in over a decade, driven by structurally lower inflation, reduced offshore bond market participation (less hot money), sustained trade surpluses from improved terms of trade, and healthy yield spreads that make speculating against the ZAR costly. These structural factors suggest volatility may remain lower going forward.
• Speculative positioning has shifted dramatically in 2025, with traders moving from net long to net short on the USD, reducing speculative pressure against the ZAR. Although recent spikes in risk reversals and pressure on gold and platinum prices risk bouts of ZAR weakness as stale short USD positions clear out, the absence of strong speculative bias against the ZAR should limit significant depreciation whilst global risk sentiment remains supportive.

Baseline view

The ZAR appears well positioned for consolidative trading in the near term, supported by structural improvements in volatility drivers and benign speculative positioning.

Whilst recent risk reversal spikes point to some fear of a modest near-term selloff as traders cleared positions following pressure on precious metals, the ZSI indicates this should be limited in scope.

More broadly the currency’s resilience depends on sustained global risk appetite and constructive emerging market sentiment, with SA’s potential FATF grey list exit representing a key catalyst. Importers should monitor developments closely, although any weakness is likely short-lived absent a major Wall Street selloff or significant spike in risk aversion.

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