Rand in for rough ride as political pressures intensify

Cape Town – Currency traders are in for a rough ride this week as political pressures intensify both locally and internationally.

"We have to expect the unexpected in May, locally and internationally, with the second round of the election in France next Sunday and the UK election coming up early in June.

"Locally, the internal fight in the ANC was clearly apparent this weekend and the whole country is being drawn into it," warned Umkhulu Consulting's Adam Phillips.

He said in a note on Tuesday morning that currency operators were right to be nervous ahead of the politically charged weekend in South Africa.

"We did see an orderly move in the ZAR down to 13.22 on Friday, but despite month end and a thin market due to the Thursday holiday, it did not stay down there for long.

"[Deputy President Cyril] Ramaphosa was out in KZN not sticking to the script, while our president [Jacob Zuma] was unable to speak in Bloemfontein yesterday. He was warned not to come and was given a bloody nose by a majority of the crowd. I am sure local politics will play a big role this month," said Phillips.

READ: Boos for Zuma, Mbete and Duarte and cheers for Ramaphosa at Cosatu May day rallies

He warned that investors will be nervous of politicians' statements, possible physical violence and negative moves in the bond market.

Having touched R13.43/$ in New York on Monday night, the local unit was back at R13.35 against the greenback by 07:43 on Tuesday, "but expect some whippy moves this week and a wide range", cautioned Phillips.

The rand went over R13.40/$ on February 9 when President Jacob Zuma delivered his State of the Nation Address. Since then the currency systematically strengthened to trade at R12.31 against the greenback, minutes before former finance minister Pravin Gordhan was ordered on March 27 to return to South Africa from an international investor roadshow in the UK.

The local unit has since taken a turn for the worse, reversing all the gains and more following Zuma’s midnight Cabinet reshuffle on March 31 which saw Gordhan and his deputy Mcebisi Jonas lose their jobs. The unit’s loss of over 50c on that day alone was the start of a 6-day decline against the dollar to R13.90, before the rand found favour amid emerging market optimism.

"Given the majors it should be nearer to 13.20, but nobody wants to transact down there at the moment. I expect 13.40 to be tested again and beyond today," said Phillips.