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Confused rand in balancing act between politics and economics - expert

Jan 11 2018 14:33
Carin Smith

Cape Town - The rand seems to be in a state of confusion at the moment, Bianca Botes of corporate treasury management at Peregrine Treasury Solutions said on Thursday.

In her view, the rand is currently doing a balancing act between politics and economics.

After trading 0.87% weaker at R12.44 to the US dollar at close of local trade on Wednesday, the rand traded slightly stronger during early Asian trade on Thursday morning. Its expected range for the day is between R12.30/$ and R12.55/$, according to NKC African Economics.

By mid-afternoon trade the rand was up 0.07% at R12.41.

"The dollar had given up some ground yesterday following China’s announcement of a potential change in its US Treasury buying strategy, but quickly recovered, and the stronger dollar and the continued Zuma-saga continue to weigh on the rand," said Botes.

"However, the rand is supported by stronger commodity prices and the afterglow of Cyril Ramaphosa’s NEC victory."

She said markets are also disappointed by President Jacob Zuma escaping a much-anticipated recall by the ANC's national executive committee (NEC) on Wednesday. 

Despite indications that it would discuss the president stepping down, the committee did not deliberate on Zuma's future at its meeting in East London.  

"The rand tested a break above R12.50 (to the dollar) a few times yesterday, but lacked momentum, quickly retracing to the mid R12.40s following each break," said Botes.

Andre Botha, a dealer at TreasuryOne, said the overwhelming feeling at the moment is that the market is still in the final stages of the holiday hangover, with little economic news doing the rounds. That is, however, not to say that there is not some activity in the markets.

"The primary concern for the rand is still...the political landscape. Yesterday (Wednesday), we saw (new ANC Secretary-General) Ace Magashule address the media saying that the ANC NEC meeting did not discuss the removal of President Jacob Zuma. This immediately gave the rand 'weak-knees', and we saw the currency losing about 15 cents on the back of the press conference," said Botha.

"This, along with an incorrect headline about the possible removal of President Zuma on Tuesday, caused a definite stir in the market and showed the rand's volatility regarding politics at the moment."

With gains harder to come by, Botha expects the rand to start losing some ground as it has strengthened a lot in the past four to five weeks.

In its market report NKC African Economics notes the rand had weakened to a two-week low against the dollar during European trade on Tuesday.

"The South African currency traded on the back foot along with most other emerging market currencies mainly due to rising US bond yields, which reduced the appeal of riskier emerging market government bonds," said NKC.

"US bond yields have increased due to rising expectations of at least two US interest rate hikes this year, following recent strong US data, as well as speculation that the Bank of Japan is preparing to reduce its monetary stimulus this year."

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rand  |  dollar  |  markets  |  currencies
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