Rand at 9-month high as DA leads metros in early results

Cape Town – The rand is at a nine-month high against the dollar as early results from the local government elections see the Democratic Alliance leading key metros and ahead of the Bank of England’s (BoE's) Super Thursday announcement, which could further boost the rand.

By 11:50, the rand had broken through the R13.80 barrier and was trading 1.52% stronger at R13.79. It last traded at this level on 3 November 2015.

While the ANC is leading the country overall, the DA is in the lead in Johannesburg, Pretoria, Nelson Mandela Bay and Cape Town. While political analysts say the results are too early to make any major calls on the final outcome, the market is seeing this is as positive for the rand.

“The election outcome seems to be supporting expectations of a change in major cities,” Simon Quijano-Evans, emerging-market strategist at Legal & General Investment Management in London, told Bloomberg. “A wind of change is what markets have been looking for, however small it may be, given the sustained income inequality and continued drop in growth rates.”

“Smooth-running local elections are helping the sentiment this morning, it looks like our democracy is still in good order, so that’s good news,” said Ion de Vleeschauwer, chief dealer at Bidvest Bank in Johannesburg. “The carry play is also helping things along with the BOE expected to cut rates today, our yields are looking attractive in the short term.”

The all-important UK vote - dubbed Super Thursday - will be the decision at 13:00 SA time by the post-Brexit BoE to cut interest rates by 0.25% from the current 0.50% while leaving its asset purchase programme unchanged at £375bn, according to Treasury One and RMB.

It’s special because the decision will reverberate across global markets.

Bloomberg's Brexit bulletin: Bank of England’s ‘Super Thursday’

“(It) will add further impetus for global investors to seek yields and will once again be rand positive,” Wichard Cilliers, head of dealing and director at TreasuryOne, said on Thursday.

“If the BoE surprises by not only cutting rates by more than 0.25% but by adding additional stimulus, the rand would rally hard and a sustainable break of 13.80 is on the cards.”

RMB analyst Isaah Mhlanga concurred on Thursday: “The rand has appreciated aggressively post the Brexit rally. Further gains look unlikely, but if the BoE delivers more than expected, it could be more happy days for the local unit over the short term.”

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Local elections won’t cause rand volatility

Domestically, the local elections shouldn’t cause much market movement unless something radical happens, said Cilliers.

Umkhulu Consulting’s Adam Phillips agreed on Thursday: “The results are still being counted, but unlike UK polls it looks remarkably like predictions are going to be fairly accurate.

“With the local elections done and the votes being tallied it’s still too early to know who’s in the lead; what is obvious at this early stage is that it is going to be a hotly contested election in the major metros,” Cilliers said.

“While it’s super Thursday in global markets, it’s a Tale of Three Metros and three political parties locally as the ANC, the DA and the new kid on the block - the EFF - wait to see their fate in the highly-contested metros of Tshwane (Pretoria), Nelson Mandela Bay (Port Elizabeth) and Johannesburg,” said Mhlanga.

“So far the result would spell that the ANC is losing all the three metros to the DA, but it is too early to make such conclusions,” he said. “Suffice it to say that there will be some coalitions in either Tshwane or Joburg once the counting is finished.”

Phillips said that when the results come out late on Friday, the rand will initially react before settling back. “Until then it looks like the technical traders will enjoy the move back to 13.90 and might push it stronger” on Thursday, he said.

This infographic was last updated on July 13. It will updated with the latest stats on August 13.