The Rand Approving Recent Developments
The rand has traded to its best levels against the dollar since May 2015 and remains firm against the GBP and EUR as well as its emerging market currency peers. Strength in the rand has extended over the weekend following developments within the ANC (leading political in South Africa) NEC (National Executive Committee) meeting on the weekend.
The NEC Catalyst
Although not on the original meeting agenda, the ANC NEC saw a late motion to recall President Jacob Zuma being debated in an attempt to re-establish trust in the political party, ahead of the 2019 elections. The debate concluded with the issue now being referred to the ANC top 6 officials. Newswires are suggesting that the president’s recall now appears imminent, although the timeline thereof remains unclear.
The Eskom Catalyst
Further appreciation of the rand can be attributed to developments around ailing State Owned Enterprise (SOE) Eskom, South Africa’s power/energy utility. A thirteen board member shake up, including a newly appointed Chairperson, sees the presidency removing those former executives tainted by allegations of corruption.
Movements for the rand against the dollar have been the most pronounced. Notwithstanding the Rand’s aforementioned domestic catalysts for strength, the dollar has been on a weakening trend against most currencies, as the outlook for monetary tightening in the US finds a more dovish momentum and policymakers struggle to find common ground on spending and immigration decisions.
A daily price chart of the USD/ZAR shows the pair breaking down out of a short term consolidation between levels R12.18/$ and R12.55/$. The move suggests the short term continuation of the downtrend for the USD/ZAR, in line with the longer term downtrend already in place for the currency pair. A projected target from the aforementioned range suggests that R11.80/$ may be a feasible short term target should the trend persist.
Upcoming catalysts to note
This week (commencing 22 Jan 2018) will see the South African Deputy President Cyril Ramaphosa (who is also the ANC president) leading a delegation at the World Economic Forum (WEF) in Davos. No doubt the Deputy President will be looking to promote South Africa as being open for business and re-establishing business and political trust.
Whether or not the WEF will significantly move the needle on the rand, bond and equity markets in South Africa remains debateable. However what is likely to do so will be events in February and March.
The 8th of February will see the South African President’s, State of the Nation Address (SONA). It does appear likely that the address will still be presented by current SA president Jacob Zuma, with parliament set to reply to his address on the 13th and 14th of February.
Most significant to markets will be the Budget Speech on the 21st of February, presented by Finance Minister Malusi Gigaba. The minister will be hard pressed to contain expenditure whilst providing solutions for ailing SOE’s. Further pressure will be mounted on the Finance Minister knowing that Moody’s Investor Relations are looking closely at the event before releasing their next review on South Africa’s sovereign credit ratings.
The ratings agency is set to release their review on the 23rd of March. Moody’s is the last of the three major ratings agency’s to maintain South Africa’s local currency debt at an investment grade (one notch above). Should the agency lower the local currency debt, major outflows are expected in the local bond market (in turn weakening the rand) as South Africa would be removed from major global Bond Indices.
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