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Rand breaches R12.90/$ as markets cheer French vote

Cape Town - The rand has breached the psychological R12.90/$-level, adding to early morning gains as markets cheered the outcome of the first round of the French election.

By 10:30 the local unit was trading at R12.88/$ in the currency's first push below R13/$ since President Jacob Zuma's midnight Cabinet reshuffle on March 31 that saw former finance minister Pravin Gordhan and his deputy Mcebisi Jonas removed from their positions.

"The French election has gone according to expectations but markets have rallied aggressively on relief that the worst outcome did not play out. Note, however, that risks have not dissipated totally," warned RMB currency strategist John Cairns.

Analyst say the local unit was tracking the firmer euro and as Deputy President Cyril Ramaphosa took on Zuma and the wealthy Gupta family, alleged to be capturing the state, in an apparent campaign speech.

"But, it was really the move in the EUR that caused the ZAR to strengthen," said Adam Phillips of Umkhulu Consulting in his morning note to clients.

The euro strengthened to 1.09 to the greenback after French Centrist Emmanuel Macron won the first round of the presidential vote, for now lifting the pressure off a win by far-right populist Marine Le Pen and a subsequent move out of the European Union.

"EUR/USD jumped almost two big figures this morning, to make it to a post-US-election high of 1.0935 (it was at 1.1030 just before the election) before pulling back to 1.0860. This jump is euro strength rather than dollar weakness, but currency markets have also been boosted by the risk-on appetite that has seen global equity futures up by 0.5%-1.0%," said Cairns.

Cairns said politics remains in focus, with some people seeing Ramaphosa’s call for a probe into state capture as a launch of his presidential campaign.

The Constitutional Court, meanwhile, could this week set out when it will hear arguments on the motion for the no confidence vote in parliament to be held by secret ballot.

In a "disjointed week" with a public holiday on Thursday, little activity expected on Friday and Worker's Day on Monday Phillips thinks the rand could continue to hide behind other emerging market currencies and react to a surprising move in the euro.

"Clearly no one has pencilled in such a large move after the first round. The currency moves overnight hide that Ramaphosa has shown his hand...  expect Cabinet meetings to be even more difficult now."

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Rand - Dollar
18.94
-0.2%
Rand - Pound
23.91
-0.1%
Rand - Euro
20.43
+0.2%
Rand - Aus dollar
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