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Cape Town - Investors are the least bearish on the rand in more than a year as MPs prepare to vote on a motion on Tuesday to remove President Jacob Zuma.
The cost of options that give traders the right to sell the rand over those to buy the currency slumped to just two basis points, the lowest since November 2015, from 141 basis points on Monday. That suggests demand for protection against potential losses in the rand has decreased substantially.
The rand surged 1.7% on Monday after Parliament Speaker Baleka Mbete said the vote will be held by a secret ballot. Investors speculated the secrecy of the vote might enable more members of the ruling African National Congress (ANC) to vote against Zuma, whose rule is mired in allegations of corruption and economic mismanagement.
Even so, the chances of the motion succeeding are slim, according to Societe Generale SA.
“Considering the relatively low probabilities that many local observers and market participants are assigning to the chances of passage of the no-confidence motion, rand assets are likely to see considerably further upside in the event of the motion’s success,” Phoenix Kalen, director of emerging-markets strategy at SocGen, wrote in a client note.
The rand rose for a second day on Tuesday, gaining 0.8% to R13.1199/$ as of 12:21. The no-confidence debate is scheduled to start at 14:00 in Cape Town, followed by the vote at about 15:30.
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