Cape Town – Analysts believe the rand will this week return to trading levels seen before news first broke that the African National Congress would debate President Jacob Zuma’s fate at its national executive council (NEC) meeting over the weekend.
Zuma won the NEC debate, accused foreign agents of being behind the attempt to remove him and said the issue of the NEC ousting him must never be raised again, Bloomberg and News24 sources revealed.
The rand first started gaining ground following a Bloomberg report last Tuesday, which cited two senior party officials saying the NEC would discuss the option of removing Zuma from his post at the May 26-28 meeting.
The rand made massive gains on this revelation, strengthening from R13.31/$ on May 22 to highs of R13.02/$ on May 23. It then dipped below R13 to the greenback for the rest of the week, trading between R12.90/$ and R13.00/$. When trading reopened on Sunday night at 21:00, the rand quickly gained 2% before returning to its Friday close of R12.86/$.
Now, analysts believe the rand could return to levels seen last Monday.
“We could see the R13.00/$ level tested and a run up to R13.10/$ on the cards today,” explained Gerard van der Westhuizen, dealer at TreasuryOne, in a note on Monday.
“The remainder of the week we feel that the market will revert back to the levels (R13.10/$ to R13.20/$) seen before the initial announcement that the meeting will be held this past weekend,” he said.
At 10:03, the rand was edging towards R13.00/$, trading at R12.94 to the greenback.
GRAPH: Intraday movement of rand/dollar currency from 22 May to 29 May (Source: Bloomberg)
Rand focus on ratings action
Rand Merchant Bank currency analyst John Cairns said that while politics is the local focus early in the week, ratings will become the key issue towards the end of the week.
"S&P is scheduled to provide its latest rating review on Friday, (and) no change in view is expected," he wrote in a note on Monday. "We do not know for sure when the more important review from Moody’s will come but we think that it will be either this Friday or next.
"Currently, expectations are that Moody’s will downgrade the local currency (LC) and foreign currency (FC) ratings from Baa2 to Baa3, but change the outlook from negative to stable. Markets can be impacted adversely if a negative outlook is assigned; however, we believe a two-notch downgrade is highly unlikely."
Zuma fights back
In his closing address to the three-day meeting, Zuma said he would not step down, according to one of the committee members.
He accused foreign agents of being behind the attempt to remove him and said the issue of the NEC ousting him must never be raised again, the person said.
READ: Zuma says foreign agents behind attempt to remove him - source
The committee decided on Sunday not to vote on a no-confidence motion in the president, according to the committee members, who asked not to be named because they aren’t authorised to speak publicly on the matter.
Pressure had built on Zuma to quit following his March 31 decision to fire Pravin Gordhan as finance minister in a Cabinet reshuffle, a move that sparked public protests and cost the country its investment grade credit rating.
The decision will probably increase the chances that Zuma will survive a no-confidence motion called by opposition parties in Parliament, whether or not the Constitutional Court orders a secret ballot for the vote. ANC MPs occupy 62% of the 400 seats in the National Assembly.
Another source told News24 that Zuma threatened his detractors in the ANC not to "push him too far". "He was very angry. It was the first time I have seen him so angry," said an NEC source.