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Rand runs on news that ANC top brass oppose Zuma's Gordhan axing

Cape Town - The rand reacted sharply on a report that President Jacob Zuma's plan to fire Finance Minister Pravin Gordhan is said to be opposed by three party leaders.

Bloomberg quoted a person familiar with the situation.

The rand immediately firmed to R12.93, 0.44% stronger than its previous overnight close of R12.99 and its session low of R13.16 to the greenback.

TreasuryOne said in a brief note that the rumours are still flying around, "nobody knows what to expect". They were referring to the rumours that Gordhan and his deputy Mcebisi Jonas may be replaced in a Cabinet reshuffle following a surprise recall to immediately return to South Africa from an international investor roadshow.

READ: Zuma's plan to fire Gordhan said to be opposed by 3 ANC leaders

The three said to be opposed are Deputy President Cyril Ramaphosa, secretary general Gwede Mantashe and Treasurer general Zweli Mkhize.

By 13:07 the local unit was trading at R12.92/$.


RMB currency strategist John Cairns earlier said local political news is now pretty much everything for the local market.

He said the rand seems fairly optimistic amid speculation that Zuma was sharpening his axe to get rid of Gordhan.

READ: Zuma vs Pravin: Is it checkmate?

"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.

Meanwhile, the UK has officially started its exit from the European Union.

"This will start the 2 year process for Britain to exit the EU. The GBP has already lost a lot of ground since yesterday and we will need to wait and see if Brexit will happen with a hard landing, meaning that the EU will be tough on new trade negotiations with Britain or will it have a soft landing where the EU will be very accommodating towards Britain," said TreasuryOne.

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