Rand breaks R15/$ ceiling over growth fears and political risk

Johannesburg - The rand broke the R15/$ ceiling once again on Tuesday as a wave of global risk aversion nudged emerging markets lower, while weak local manufacturing data and political uncertainty added to the pressure on the currency.

President Jacob Zuma on Tuesday faced a vote in parliament to remove him from office for breaching the constitution, following his failure to repay up to R52.9m (as predicted by the Democratic Alliance) on his private Nkandla home, whose security costs totalled R246m.

Zuma has the backing of the African National Congress (ANC), and the motion to remove Zuma is likely to fail in parliament where the ruling party enjoys a comfortable majority, with 62 percent of the 400-seat assembly

At 12:33, the rand traded at R15/$, 1.41% weaker from Monday's New York close.

"Today’s vote to impeach President Jacob Zuma will almost certainly fail. But efforts to oust the president will continue, potentially distracting political attention from South Africa’s dire economic situation," Capital Economics said in a note.

Pressure on the rand mounted as private-sector activity declined to its lowest in almost two years in March, a survey showed, as Africa's most industrialised economy lost output and shed jobs at a record pace.

"The rand is the worst performing emerging market currency, local factors are driving that additional weakness," ETM Analytics market analyst Ricardo Da Camara said. "A key factor for the weakness has been the dismal PMI data."

A warning by the central bank that the risk of a credit ratings downgrade had increased also weighed on the rand.

The South Africa Reserve Bank (Sarb) said late on Monday that a reduction in South Africa's sovereign credit rating would hit the currency hard and push short-term interest rates up by about 80 basis points, while longer-term bond yields would probably rise by around 104 basis points.

Standard & Poor's and Fitch rate South Africa's debt just one notch above junk status as it grapples with depressed commodity prices, political upheavals and an economy that is barely growing. Moody's has it two notches above junk, but on review for a downgrade.

Government bonds weakened alongside the currency, and the yield for the benchmark instrument due in 2026 added 15 basis points to 9.295%.

On the bourse, the JSE securities exchange's Top-40 index fell 1.4%.