The rand rallies but the gains are still fragile
MARKET participants hit the nail on the head.
Cyril Ramaphosa emerged victorious and was crowned the new president of the ANC last night.
The rand extended last week’s gains after starting Monday’s trading session just above the R13.00 mark to the US dollar.
As the day progressed, the local currency rallied aggressively all the way to below R12.60 before the announcement – it was clear that markets anticipated the announcement of Ramaphosa as the new ANC president.
Market participants viewed Ramaphosa as a more business/investor-friendly candidate.
Expectations are that, under his leadership, confidence may be restored in the investment community, especially if the focus is placed on the implementation of credible growth-enhancing policies, as opposed to political infighting.
The euphoria was swiftly tempered after the composition of the top six was announced, with the local unit easing to R12.75 against the greenback.
Nonetheless, yesterday saw a further compression in CDS spreads while bond yields traded lower. Foreigners were net buyers of local bonds yesterday as the yield on the SA 10-year touched 8.7 (from 9.2 a week earlier).
Ramaphosa announced his election manifesto before the conference, and it emphasised the need to renew the ANC and to grow and transform the economy – a positive from an economic perspective.
However, not all is completely positive. Political analysts caution that the composition of the top six may constrain Ramaphosa from delivering his reform agenda.
The rand eased further this morning, with the local unit touching R12.85 before 9am, while the yield on the SA 10-year ticked up to 8.8.
While the rand had a spectacular run over the last few sessions (in anticipation of the leadership change), there are still risks to the local currency.
Further details on future policies and the ability to enact these policies, possible dollar strength and weak fundamentals could all cause the recent rally to fade. Tumisho Grater Novare economic strategist