Citi caught by weak South African Rand after Trump victory – BNN Bloomberg

On November 13, 2024By Pranco

(Bloomberg) — It took less than a week for one of the Citigroup Inc. recommended Trump trades sank underwater.

A day after the US presidential election, the lender recommended buying the South African rand and selling the Mexican peso. Strategists argued that the rand will fundamentally strengthen as South Africa’s new government moves forward with economic reforms. Donald Trump’s victory, meanwhile, would put pressure on the Latin American currency, as it did in 2016, especially in the case of the Mexican peso.

They started trading at around 1.16 rand per peso, with a target move to 1.23. But on Tuesday, the pair fell below 1.13, the stop level, prompting Citi to exit the trade with a 3.1% loss.

“We chose the right currency to short the region, but we were unlucky to see ZAR severely underperform,” Citi strategists wrote in a note on Tuesday. “ZAR has long been the consensus in emerging markets, although it appears that de-risking and trading conditions have 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 nearly all of his Latin American peers. Still, losses have been somewhat limited as traders weigh whether the risks of a protectionist pivot in the US have not largely been priced in. Meanwhile, the rand fell almost 4% against the dollar, leading to losses in emerging market currencies.