Rand slides on political uncertainty

The rand tumbled against major currencies in a volatile session on Thursday as the fate of President Cyril Ramaphosa hung in the balance after a panel found he may have violated the constitution.

The local currency plunged more than 3% against the dollar in intraday trade — the biggest one-day drop since February 2021 — and by more than 4% against the euro and sterling as investors bet on the likelihood of Ramaphosa stepping down after the independent panel recommended a full investigation of a robbery in 2020 at his Phala Phala game farm.

Ramaphosa, who could face impeachment, did not address the nation on the matter as speculated earlier.

At 6.29pm, the rand was 2.77% weaker at R17.681/$ after earlier touching a low R17.95/$. It was quoted at R18.5492/€ and R21.6541/£, down 3.63% and 4.26%, respectively.

“The rand has responded negatively to the news that President Ramaphosa potentially faces an impeachment process, but there is still considerable uncertainty,” said Old Mutual Wealth investment strategist Izak Odendaal.

“If it ends up being a drawn-out affair, the market impact will fade since investors tend to have short attention spans.”

Odendaal said that while the rand responds to political uncertainty in the short term, the unit’s medium-term conditions, trajectory is“more namely dependent the strength on global of the US dollar, the pace of interest rate hikes in the US and elsewhere, and the global risk appetite in the face of a weakening economic outlook”.

The JSE had pared some of the day’s gains by the close, with banks and financial companies under particular pressure from the depreciating rand. However, metals were buoyed by news that China may ease its stringent Covid-19 measures.

The JSE all share closed 0.26% firmer at 75,020.01 points, while the top 40 added 0.44%. Industrial metals rose 4.46%, precious metals 3.79% and resources 3.48%.

However, banks slumped 8.18% and financials 6.64%.

China’s top official in charge of the fight against Covid-19 said the country’s efforts to combat the virus were “entering a new phase” with the “Omicron variant weakening” and more Chinese getting vaccinated .

Gold gained 1.79% to $1,798.71/oz and platinum was up 0.73% to $1,040/oz. Brent crude rose 2.48% to $88.72 a barrel.