Rand plum­mets as Zuma wins vote

Lesotho Times - - Business -

LON­DON — The rand fell for a sec­ond day against the dol­lar af­ter Pres­i­dent Ja­cob Zuma sur­vived a no-con­fi­dence vote that could have brought an end to his ad­min­is­tra­tion.

The de­cline marks a swift turn­around for the rand, which was the best-per­form­ing ma­jor cur­rency on Mon­day as the se­cret bal­lot was an­nounced.

It saw the sin­gle big­gest losses among East­ern Euro­pean and African cur­ren­cies on Wed­nes­day. De­spite the abrupt change in for­tunes, the re­sult is un­likely to be a trig­ger for ex­ces­sive cur­rency weak­ness as the de­feat of the mo­tion was largely priced in be­fore­hand, ac­cord­ing to Com­merzbank.

The vote “can hardly be ex­pected to be a ‘shocker’ for any mar­ket par­tic­i­pant,” cur­rency strate­gist Ul­rich Leucht­mann wrote in a note to clients. Go­ing for­ward, any pol­icy mis­takes “would have to be big to have any mar­ket im­pact – as ev­ery­body who cur­rently holds long-zar po­si­tions should be pre­pared for some volatile po­lit­i­cal news flow,” he wrote.

The rand de­clined 0.73% to 13.4756 per dol­lar as of 12:45 af­ter slid­ing 1.1% on Tues­day.

El­e­vated volatil­ity The rand’s one-month im­plied volatil­ity - a gauge of ex­pected swings in the cur­rency - now stands above 15%, the high­est among the global ma­jor ex­change rates tracked by Bloomberg. The cur­rency strength­ened al­most 13% last year af­ter plung­ing a com­bined 57% in the five years ear­lier.

Un­der Zuma, who has led the coun­try since May 2009, South Africa has slipped into re­ces­sion and has seen un­em­ploy­ment rise to a 14-year high.

The next pres­i­den­tial vote is slated for 2019, for which Zuma may try to ap­point a suc­ces­sor of his choice.

“The ques­tion of the suc­ces­sion is re­ally what we would want to know be­cause South Africa is, af­ter all, a coun­try that has sig­nif­i­cant struc­tural is­sues from the fis­cal side,” Geral­dine Sund­strom, a port­fo­lio man­ager at Pimco, told Bloomberg Tele­vi­sion.

There are other is­sues of con­cern for an­a­lysts as well. Here’s is a com­pi­la­tion of views:

ING Groep: “While we think USD/ZAR should be trad­ing near 12.00 based on long-term fair value and the cur­rently be­nign ex­ter­nal con­di­tions, we sus­pect Zuma’s sur­vival will main­tain a po­lit­i­cal risk pre­mium in the ZAR,” ING Groep global head of strat­egy Chris Turner writes in a note to clients.

More likely to trade in a 13.0013.50 range, rather than head­ing to fair value. There are con­cerns over whether debt will be down­graded fur­ther by S&P and Moody’s; “A shift to junk sta­tus for the lo­cal cur­rency rat­ings from both agencies would take South African gov­ern­ment bonds out of key in­ter­na­tional bench­marks such as the WGBI and Bar­clays Global Ag­gre­gate, prompt­ing ZAR out­flows as much as 2.5% of GDP (around $8b), ac­cord­ing to the IMF.”

So­ci­ete Gen­erale: “The out­look for ZAR re­verts to one dom­i­nated by near-term threats both on do­mes­tic pol­i­tics as well as by the un­favourable ex­ter­nal en­vi­ron­ment of geopo­lit­i­cal ten­sions,” writes strate­gist Phoenix Kalen in emailed com­ments.

Lev­els close to 14.00 would be at­trac­tive. “It is at­trac­tive al­ready were it not for the geopo­lit­i­cal con­cerns on North Korea,” re­fer­ring to es­ca­lat­ing ten­sions with the US. — News24

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