Rand set for worst week since Nene was fired

Johannesburg - The rand is headed for the biggest weekly drop since December against the dollar as a statement of support by President Jacob Zuma failed to ease investor concern that Finance Minister Pravin Gordhan may be replaced.

The presidency said on Thursday it wouldn’t stop an investigation by a special police unit into allegations that Gordhan oversaw the establishment of an illicit investigative unit during his tenure as head of the national tax agency, even as Zuma expressed “full confidence” in the finance minister.

Opposition parties and some independent analysts have accused Zuma, 74, of trying to gain greater control of the National Treasury to further his and his allies’ economic interests before his second and final presidential term ends in 2019. He has denied the allegation.

The rand was little changed at R14.2/$ by 07:22 and has declined 4.8% this week. It’s set for the largest weekly slump since the five days through December 11, the period when Zuma fired then-Finance Minister Nhlanhla Nene and replaced him with a little-known lawmaker. It’s the worst performer this week against the dollar among 24 emerging-market currencies tracked by Bloomberg.

“The country remains on a knife edge,” said Warrick Butler, head of emerging-market spot trading at Standard Bank  in Johannesburg. “As we all know too well these days, the country’s leadership decisions can be unpredictable.”

Gordhan was summoned to report to the Hawks police unit on Thursday. The finance minister said on Wednesday he had done nothing wrong and wouldn’t report to police.

The yield on rand-denominated bonds due in December 2026 were little changed at 9.07 percent Friday, the highest in almost two months, and has increased 60 basis points this week for the biggest increase over such a period since Zuma fired Nene.

"The fight is on," RMB analyst John Cairns said on Friday. "Political heavyweights, including the deputy president, have come out in support of Gordhan. But the Hawks and their supporters might still take the plunge. The Business Day’s editorial argues that Gordhan’s arrest is 'inevitable' and could happen 'perhaps as early as this week'." 

"Initial results from our survey suggest people are split down the middle on whether Gordhan will remain in his post or not. Pretty much everyone agrees, however, that the rand would bomb if he goes.

"We, like everyone else, just don’t know what will happen. However, it still appears to us that not enough risk is priced. Our survey is showing a 50% probability that he goes, with the rand declining by R3.00 as a result."

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