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The SA Daily 12 March 2018

High rand/VIX correlation

  • The VIX, a global measure of risk appetite/aversion, remains highly correlated with emerging market currencies, including the rand. A rolling correlation between the VIX and the USDZAR shows that these two variables are highly correlated; also, the correlation has risen recently above the historical average correlation. Generally, heightened risk aversion comes alongside weaker EM currencies.
  • However, the higher VIX has not incurred a meaningfully weaker rand, possibly due to SA’s improved economic fundamentals (an improving political environment; a slightly improved budgetary outlook; the cabinet renewal) that have kept the rand resilient.
  • But, fears of a global trade war, triggered by potential tariffs on US imported steel and aluminium, could see global risk aversion rise further, which could weigh on the rand.

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