Rand now at R12.70/$ on Gordhan saga

Johannesburg - The rand erased its advance to become the worst performer in emerging markets after President Jacob Zuma’s order to abort an international roadshow served as a wake-up call to South Africa's political risks.

The currency reversed gains of as much as 2% to trade 2.14% lower against the dollar after Finance Minister Pravin Gordhan and his deputy, Mcebisi Jonas, were instructed to cancel meetings in London and the US with investors and ratings companies, the Presidency said in a statement on Monday, without giving a reason.

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The government’s rand-denominated bonds due 2026 fell, driving the yield 22 basis points higher to 8.59%, the biggest jump since October.

"There are some conclusions now being drawn that there’s possibly an imminent Cabinet reshuffle, "said Manisha Morar, an analyst at ETM Analytics in Johannesburg. "It puts into question our credit rating and the possibility of a downgrade coming sooner (rather) than later."

Speculation that Gordhan is on the verge of being fired has swirled for months, as he clashed with Zuma over the management of state companies and the national tax agency. But those concerns were overshadowed by an emerging-market rally this year spurred by a decline in the US dollar.

Before Monday, the rand had led gains by developing nations, advancing 11% against the dollar. It traded at R12.6598 per dollar as of 13:08 in Johannesburg.

"The market was trading with very little political risk being priced in," said Gordon Kerr, a trader at Johannesburg-based RMB. "We could see the rand consolidate at weaker levels after what has been a brilliant run. The shock of the news may impact the currency for a few days."

The currency weakened from R12.36/$ to R12.60/$ following initial reports. 

The rand was trading at R12.70/$ at 15.34.