Rand bashed by un­cer­tainty

Weaker com­modi­ties con­trib­ute to cur­ren­cies de­cline

The Star Early Edition - - BUSINESS REPORT - Wise­man Khuzwayo

THE RAND plunged yes­ter­day along­side the Rus­sian rou­ble pum­melled by weaker com­mod­ity prices and po­lit­i­cal un­cer­tain­ties and lead­ing a wider fall in emerg­ing cur­ren­cies.

The rand weak­ened as much as 1.6 per­cent to touch its weak­est in nearly two weeks be­fore re­coup­ing some losses, hit also by me­dia re­ports that Pres­i­dent Ja­cob Zuma was con­sid­er­ing fir­ing min­is­ters who op­posed him and backed calls for his res­ig­na­tion in Novem­ber.

At 5pm yes­ter­day the rand was bid at 13.5805 to the dol­lar, 11.12c weaker than at the same time on Fri­day.

“Risk sen­ti­ment is tak­ing a bit of a knock fol­low­ing the lat­est po­lit­i­cal de­vel­op­ments on pos­si­ble cabi­net reshuf­fle on the do­mes­tic front,” Jana van Deven­ter, a trader at ETM said.

While the dol­lar stayed flat ver­sus a bas­ket of cur­ren­cies, lower oil and com­mod­ity prices dragged the rand and Rus­sia’s rou­ble lower.

“Oil has come down a bit and that is weigh­ing on the rou­ble, and some of the com­modi­ties like plat­inum, which sug­gests there may be a cor­rec­tion in met­als prices as well, so it’s a bit of risk off on weaker com­mod­ity prices,” said Per Ham­mar­lund, chief emerg­ing mar­ket strate­gist at SEB.

John Cairns, a cur­rency strate­gist at Rand Mer­chant Bank, said the ner­vous­ness over a pos­si­ble cabi­net reshuf­fle that hit sen­ti­ment last Fri­day should have set­tled some­what over the week­end.

“A move as far as 13.30 is jus­ti­fi­able given where other risk cur­ren­cies are trad­ing, but we think a small on­go­ing risk pre­mium will prob­a­bly con­strain the rand from mak­ing the full ad­just­ment.”

He said a multi-day di­rec­tion would con­tinue to be de­ter­mined by US Pres­i­dent Don­ald Trump, even though there was a lot on the data and events cal­en­dar this week.

“The rand’s re­ac­tion to the cabi­net reshuf­fle talk was ag­gres­sive, with dol­lar/rand trad­ing high into the 13.50s at one stage. This high­lights just how wor­ried the mar­kets are about lo­cal pol­i­tics.

“More­over, it shows a re­newed sen­si­tiv­ity to po­lit­i­cal news: by late 2016, the mar­ket ap­peared to have tired with the con­tin­ued ru­mour mill.”

Cairns said me­dia re­ports on the reshuf­fle did the dam­age. “Ac­cord­ing to their (me­dia) sources, Zuma had threat­ened the cabi­net reshuf­fle at an ANC NEC meet­ing. Whether Zuma said what was re­ported is un­clear. Even if he did, will he do what he said he would do?”

Cairns said a lo­cal cabi­net reshuf­fle aside, US Pres­i­dent Don­ald Trump was the key driver of the rand. “His im­mi­gra­tion re­stric­tions have caused some con­cern – he might be a pres­i­dent who ac­tu­ally does what he said he would do, which in­cludes sig­nif­i­cant trade pro­tec­tion­ism. Com­bined with Fri­day’s slightly weaker-than-ex­pected US (gross do­mes­tic prod­uct) print, the net ef­fect should be rand pos­i­tive with dol­lar weak­ness out­weigh­ing some of the mi­nor risk-off.”

Old Mu­tual Multi-Man­agers, Dave Mohr and Izak Oden­daal, said the di­rec­tion of the rand would not only im­pact the in­fla­tion and in­ter­est rate out­look, but would also in­flu­ence re­turns from var­i­ous as­set classes for in­vestors.

“But the rand is also un­pre­dictable, and at the mercy of global cap­i­tal flows, com­mod­ity prices, sen­ti­ment to­wards emerg­ing mar­kets and do­mes­tic… de­vel­op­ments. Given the in­her­ent un­cer­tainty, it is pru­dent to be ap­pro­pri­ately di­ver­si­fied: some as­sets do well in a strong rand en­vi­ron­ment, and some ben­e­fit from a weak rand.” – Ad­di­tional re­port­ing by Reuters.

PHOTO: AP

Peo­ple stand by an elec­tronic stock board of a se­cu­ri­ties firm in Tokyo yes­ter­day. The rand led a wider fall in emerg­ing cur­ren­cies.

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