Citi Caught Out By Weak South African Rand After Trump Victory
(Bloomberg) -- It took less than a week for one of Citigroup Inc.’s recommended Trump trades to sink under water.
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A day after the US presidential election, the lender recommended buying South Africa’s rand and selling Mexico’s peso. Strategists argued the rand was fundamentally set to strengthen as South Africa’s new government moves ahead with economic reforms. Donald Trump’s victory, meanwhile, would put Latin American currencies under pressure as it did in 2016, especially in the case of Mexican peso.
They entered the trade at around 1.16 rand per peso, targeting a move to 1.23. But on Tuesday, the pair fell below 1.13, the stop level, prompting Citi to close the trade with a 3.1% loss.
“We chose the right currency to short in the region, but we were unfortunate ZAR has severely underperformed,” the Citi strategists wrote in a note Tuesday. “ZAR was the consensus long in EM, although it seems deleveraging of risk and terms of trade has led to such extreme moves on the currency.”
The Mexican peso has weakened 1.6% against the dollar since Trump secured his return to the White House, lagging almost all of its Latin American peers. Still, losses have been somewhat limited as traders weigh whether risks of a US protectionist pivot aren’t largely priced in. Meanwhile, the rand slumped almost 4% against the greenback, leading emerging-market currency losses.
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