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Rand rallies after Zuma denies war with Gordhan

Mar 01 2016 06:00
Xola Potelwa

Johannesburg - The rand rallied against the dollar on to its first monthly gain in four months as President Jacob Zuma sought to assure investors he isn’t at war with Finance Minister Pravin Gordhan.

The rand gained as much as 2.7%, reversing most of its biggest slump in four years on Friday as uncertainty around a power struggle between Gordhan and the head of the South African Revenue Service Tom Moyane unnerved investors.

It was the best performer among 31 major and emerging market currencies tracked by Bloomberg after Zuma’s office said Gordhan would remain in his position.

“Undoubtedly, the reassurance that came out of the presidency this afternoon will have factored into the rand’s strength,” said Mohammed Nalla, head of strategic research at Nedbank.

“We’re seeing a partial reversal of what happened on Friday, an unwinding of the political risk.”

Yields on benchmark government bonds dropped one basis point after surging 16 basis points on Friday. The rand was 2.4% stronger at R15.7740 by 18:31 on Monday, taking February’s gain to 0.8% in the first monthly advance since October. By 06:30 on Tuesday, however, the rand has eased off at R15.88/$.

The currency was also buoyed by positive risk sentiment as China cut the reserve ratio for banks and commodity prices gained.

“Minister Gordhan remains the minister of Finance and any positing that the position of the minister is under any threat is dismissed,” Zuma spokesperson Bongani Majola said in an e-mailed statement on Monday.

The rand’s three-month implied volatility against the dollar climbed 25 basis points on Monday to 20% after soaring 101 points on Friday, suggesting options traders are expecting wider swings in the currency in coming months.

“The volatility that we’re seeing in the rand is due to a high degree of unease that is currently prevalent in the markets,” said Nalla.

“We have a sense of the markets being quite skittish, and so we see that potential risk premium coming through on the rand.”

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pravin gordhan  |  jacob zuma  |  rand  |  currency

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