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Cape Town – The five-day weakening trend of the rand could continue, but the currency is due a little bounce, an analyst said on Tuesday.
“It is unusual to see a market tear ahead without at least a temporary pause for profit-taking, so the warning is that the rand is due a little bounce,” Rand Merchant Bank analyst John Cairns said in a note on Tuesday.
The rand was nearly 1% down at R14.44/$ on Tuesday at 08:30, while it was around 0.5% down against the pound (R18.88) and the euro (R16.12).
Cairns said the political risk premium in the rand is still growing, as evidenced in the unit's continued underperformance relative to other risk currencies.
READ: In a month when a record wave of money headed to emerging markets, South African bonds managed to lose money for foreign investors: Left out of bond rally, SA laments the Gordhan factor.
“Headline news has focused on the Eskom-Treasury war of words — with negative impacts because this is seen as a broadening in the war between the dominant ANC factions,” he said.
Treasury said on Monday that Eskom “failed to honour its undertaking” to cooperate with the process of reviewing the power utility’s coal contracts.
READ: Gloves off as Treasury takes swipe at Eskom
Cairns said it was worrying that ANC deputy secretary general Jessie Duarte took a swipe at the SA Reserve Bank, saying it needed to cushion the rand but that it is “privately owned and that is a difficulty”.
“We presume, and hope, that this was a one-off statement rather than the start of a sustained attack on the Sarb,” said Cairns.
Umkhulu Consulting analyst Adam Phillips said on Tuesday that the longer the saga plays out, the more nervous dollar bulls will be.
“A test of R14.55/$ could possibly mean a move up to R14.80/$,” he said. “This will be based on further political news.
“Since the beginning of the year offshore investors have taken out approximately R6.4bn a month via the bond and equity markets,” he said. “In some ways, when one looks at the statistic it is amazing that the rand has strengthened as much as it has.”
Cairns said US Federal Reserve fears and accompanying dollar gains contributed to the dollar’s gains on Monday.
“Fed hike probabilities are down to 21% for September and 52% for December,” he said.
