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Rand could reach R11.50/$ on #Zumexit, Ramaphosa presidency - analyst

Feb 15 2018 15:11
Lameez Omarjee

Cape Town - The rand held steady at R11.66 to the dollar on Thursday afternoon, following Cyril Ramaphosa's unopposed election as president of the country in Parliament.

The currency strengthened to a three-year high of R11.67/$ after former president Jacob Zuma made the announcement that he would be leaving office on Wednesday night.

The rand opened at R11.71/$ on Thursday morning, before making sharp gains to R11.65/$. By midday the unit had reached R11.60/$.  

Wall Street cheered the gains on Zuma's exit. A prominent trader said he had been waiting for the moment to start buying SA bonds. 

Rand Merchant Bank currency specialist John Cairns however stressed that these gains may be short-lived. “Our take over the past week has been that a resignation would trigger some knee-jerk rand gains, but that these would not continue for very long. We maintain this view,” he said.

Rand could strengthen to R11.50

He explained that with the support of dollar weakness, and taking into account the full market reaction the news of Zuma’s resignation could possibly see, the rand could firm to under R11.50 by the end of the week. But Cairns said there’s only a 30% probability of this outcome.

Alternatively, the rand could go back to R11.80, he said.

“From a longer-term perspective, it is going to take a while before we can gauge how the political change will affect the economy and local markets.”  

TreasuryOne dealer Gerard van der Westhuizen is also of the view that the rand has been supported by the dollar’s “massive plunge” over mixed data outcomes. US inflation was above market expectations of 2%; however, retail sales suffered their biggest decline in 11 months.  

“The retail sales figure was contradicting CPI because the US economy needs the consumer to spend more in order to push up inflation,” he said. This creates concerns over February inflation figures and ultimately when the Federal Reserve Bank’s hiking cycle will begin, he explained.

Budget Speech

The transition of South Africa’s presidency is being finalised on Thursday, but the next big concern for markets is the Budget Speech scheduled for February 21. There is a possibility that a different finance minister, who will serve at the pleasure of the new president, will deliver the speech.

“Should SONA (State of the Nation Address) and the Budget Speech go down without too much criticism, one can almost assume that Moody's will hold off from downgrading South Africa’s credit rating for the time being,” suggested Bianca Botes, of corporate treasury management at Peregrine Treasury Solutions.

Botes expects the rand to trade in a range of between R11.70/% and R12/$ leading up the Budget Speech.

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cyril ramaphosa  |  jacob zuma  |  currencies  |  markets  |  rand


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