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Cape Town - The rand lost over 1% of its value against the dollar on Wednesday, as international investors reacted to the news of President Jacob Zuma’s surprise Cabinet changes, according to TreasuryOne dealer Wichard Cilliers.
The rand fell from R13.39 to R13.60 against the dollar, before strengthening somewhat. At 17:27 the local unit was trading at 13.58 to the greenback.
The rand lost 0.5% on Tuesday immediately after Zuma's announcement.
“The movement we have seen today is still in reaction to the reshuffle yesterday, as investors are worried about SA,” Cilliers told Fin24 via WhatsApp on Wednesday afternoon.
Cilliers said two additional factors have impacted the local currency.
First there is the mini budget due to be delivered by Finance Minister Malusi Gigaba next week. “The market is unsure how Malusi Gigaba will make the budget work,” said Cilliers.
A second factor was that Consumer Price Index data, released by StatsSA on Wednesday, came in at 5.1% for September from 4.8% in August 2017.
Cilliers said the rise in CPI meant SA “won’t see interest rates being cut to help our growth”.
Global view
Gerrit van Rooyen, an economist at NKC African Economics, said on Wednesday afternoon that the rand’s weakness should be seen against the backdrop of weaker emerging market currencies in general.
This, he said, was due in part to US Treasury bonds yield climbing higher, which suggested an increase in expectations of future US interest rates and lower capital inflows into emerging markets.
“The rise in US bond yields was driven by speculation that Stanford University economics professor John Taylor is now the frontrunner to replace Janet Yellen as the head of the US central bank early next year. Markets expect that US interest rate would be higher if Taylor takes over,” he said.
But even when compared only to other emerging market currencies, the rand’s performance was still bad.
“That has to do with the latest Cabinet reshuffle, which has reignited fears about the impact of political instability on the South African economy and credit rating,” he said, adding - like Cilliers - that CPI data also played a role.
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