Calm before the storm for rand?

Cape Town - Local political news is now pretty much everything for the local market, and with what seems to be the calm before the storm, the rand's reaction seems fairly optimistic.

This is the view of RMB currency strategist John Cairns amid speculation that President Jacob Zuma is sharpening his axe to get rid of Finance Minister Pravin Gordhan.

The rand did touch R13.12 against the US dollar briefly on Wednesday before retreating to trade at R13.09/$ by 12:28, still 0.78% weaker than its overnight close in New York.

"If Gordhan is indeed on his way out then the rand reaction seems fairly sanguine. USD/ZAR has pushed up 70 cents since its lows, which may sound a lot, but only takes the pair back to where it was earlier this month," said Cairns.

He said this limited move could reflect either market scepticism that Gordhan will go, or that the market does not think it would be such a big deal.

"The latter of course would be dependent on a respected person taking over and whether a new Cabinet is better than the old. That is a subtle view that sees shades of grey rather than a black/white Gordhan goes or stays but which has not yet become the mainstream discussion.

"Thought should also be given to a potential ANC revolt against a hostile presidential decision and a scenario where Zuma himself becomes the casualty," Cairns cautioned.

The rand was trading at a near two-year high of R12.31/$ as US President Donald Trump suffered a blow to his plan to overhaul the healthcare system, minutes before Zuma ordered Gordhan and his entourage's immediate return to SA from an international investor roadshow in the UK and US.

Cairns said risks are still skewed towards ongoing weakness, but this would require further negative news flow. In the absence of further shock, the market would normally consolidate and start to recover, he said.

"Continued aggressive foreign buying of our bonds supports this view — they bought a huge R5bn yesterday. Sharp rand gains, however, are unlikely short of a clear statement from Zuma that Gordhan and Jonas are staying."

Cairns maintains that the rand would probably have weakened anyway if the whole Zuma/Gordhan saga had not blown up, "although obviously not to the same extent".

Political analyst Daniel Silke said it is clear political risks once again play into value of the rand going forward.

"Anything that looks like a disrupting status quo of fiscal stability in South Africa, or political interference in the Treasury will have a negative effect on the rand."

However, while the rand declined over the last two days, it is still a currency that remains more buoyant than it was a year ago, he said.

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