UBS bets this time is different as it shorts rand versus lira

UBS Group on Wednesday recommended the trade, which Wall Street heavyweights including Bank of America Corp. and JPMorgan Chase & Co. have tried in the past without success.

The rand has been the best performing currency in the world this year with a 7% gain against the dollar as risk appetite returned to global markets. Against the lira, the South African currency has advanced 5.1%  after last year’s 20% surge. But a technical signal suggests this trend may be about to change.

The short-term average for the lira-rand has climbed above the long-term mean for the first time in more than a year, a so called golden cross that indicates a buy signal to some traders who follow chart patterns.

“The South African rand and Turkish lira were both beneficiaries of the shift in the Fed’s outlook to a more neutral stance and the favourable sentiment toward risky assets, including those from emerging markets,” Tilmann Kolb and Jonas David, London-based strategists at Zurich-based UBS, said in a note to clients. But the currencies may diverge in the short term, they said.

Read: Rand to shed half its 2019 gains in a year 

“The rand has significantly outperformed, but we see limited room for this trend to extend and expect some reversal, driven by both global and domestic factors,” the UBS strategists wrote. “The Turkish central bank’s hawkish stance and high policy rate support the lira in the near term.”

The rand weakened 0.4% to 2.58 per lira by 12:27 pm in Johannesburg.