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UPDATE: Shortly after the ANC's post-NEC media briefing started at 14:00 on Tuesday, the rand weakened to R14 to the dollar. It has since been hovering around the R14/$ mark. The local unit softened as ANC secretary general Gwede Mantashe said that President Jacob Zuma is not going to step down.
Johannesburg – The rand weakened on Tuesday amid reports that President Jacob Zuma had survived a three-day attack on his leadership from within the ANC's National Executive Committee (NEC).
The rand opened at R13.73 to the dollar on Tuesday and was approaching the R14 mark by midday, trading at R13.95.
The weakness in the rand came just before the ANC was set to hold a press briefing at 14:00 on Tuesday, following the conclusion of its NEC meeting late on Monday.
“The fact that the rand has moved so much shows that it is politically driven,” Petri Redelinghuys, independent trader and founder of Herenya Capital, told Fin24.
Speculation around Zuma possibly leaving office indicated some sort of political stability and the currency strengthened, he explained. Following the new developments, the currency has taken a dip.
READ: While Zuma battles his fate, the rand finds new life
However, economist Dawie Roodt told Fin24 that the weakening of the rand in the last few hours is a result of a combination of factors, including the strengthening of the dollar.
Roodt said he expects the greenback to continue strengthening in the next few months. This will be driven by the possibility of an interest rate hike in the US, stronger economic growth and policy changes under the Trump administration.
Roodt added it is important to note that the rand is undervalued. “It should be trading at a better level,” he said.
“Negative forces are keeping the rand undervalued.”
This means that if nothing bad happens, the currency will likely appreciate, he said.
Political developments have previously had an impact on the exchange rate. This was seen with Nenegate in December 2015, when the rand plummeted against major currencies.
Even though the local currency is weak, Roodt said the rand is doing well against the dollar.
Meanwhile, Redelinghuys also believes the currency will strengthen in the medium term, over the next six to 18 months. This is due to a combination of factors, including the uptick in commodities.
“A big positive for the rand is that it is already undervalued which makes it attractive to capital markets,” said Roodt.
The possibility of the end of the “Zuma era” is also a positive.
However, this has some drawbacks, Roodt noted.
ALSO READ: How rand could swing if Zuma survives ousting bid
The removal of Zuma will not be good for the medium term as this will introduce an element of uncertainty which will impact the currency, he explained.
Among the negative influences, Roodt said that high inflation, political uncertainty, weak economic growth and the increasing current account deficit all contributed to the currency’s depreciation.
“If we do not add to the woes, the chances are the currency will appreciate,” said Roodt.
Among the “woes” would be a possible credit downgrade by ratings agency Standard and Poor’s to junk status, which will result in the withdrawal of institutional investors.
Roodt added that although institutional investors are important, speculators are just as important. They may view the undervalued currency positively and see it as “cheap entrance” to markets.
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