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Political turmoil hits rand

Cape Town - The rand exchange rate is all about politics, which means it will suffer until the battle with Finance Minister Pravin Gordhan is settled, said Treasury consultant Adam Phillips of Umkhulu Consulting on Tuesday.

He said after the reports on Sunday of Gordhan's "imminent arrest" there was only one way the rand was going to head. The local unit slipped, despite broad dollar weakness on Monday afternoon.

"Despite an initial retrace from Sunday's night low of 15.68 [to the dollar] to just below 15.40, it did not take long for buyers of USD to appear. They managed to push it up just above 15.70 yesterday, although it is just below 15.60 now."

By 08:30 on Tuesday the rand was trading at R15.58/$, R17.64/€ and R22.58/£.

Phillips said despite a denial from the president's office, the market would rather be long of dollars given what happened in December.

President Jacob Zuma on December 9 last year appointed little-known ANC MP Des van Rooyen as finance minister, sending the rand and local bonds into a nosedive before reappointing Gordhan four days later to a post he held from 2009 to 2014.

The aftermath of the Nenegate event has been well documented and Biznews.com founder Alec Hogg calculated the immediate loss to the country as R500bn.

Phillips said the rumours that Eskom CEO Brian Molefe will move in once Gordhan is fired and that this would steady the rand is not the correct thinking. "Molefe appears to be doing a great job at Eskom, so why move him in the first place? Unfortunately, there seems to be no chance of Zuma sorting this out.

Rand missing out on rally

"We have known it for a long time, but the local elections are fast becoming an acid test for the ANC. The shenanigans at home means the ZAR is missing out while commodity and oil prices rally," he said.

The oil price has moved up overnight over supply side issues. AFP reported Brent crude pushed towards $50 a barrel in Asia on Tuesday, boosted by supply disruptions from the escalating Canadian wildfires and armed attacks against oil facilities in Nigeria. 

"It might be that the ZAR claws back some losses today, but the only way we are going to see investor buying is if the political wrangling can stop. Just be prepared for steep moves (up and down), as no operators really want to be holding a sizeable position at the moment," said Phillips.

NKC African Economics said in its daily report traders are now looking forward to the release of US monetary policy meeting minutes on Wednesday and the local interest rate decision on Thursday.

"If MPC does decide to raise rates on Thursday, we doubt it will have a marked positive impact on ZAR."

NKC expects the rand to trade in a broad range between R15.30/$  and R15.95/$.

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