Cape Town – The rand was trading firmer on Monday morning on the back of dollar weakness and the expectation of President Jacob Zuma’s early exit.
Analysts expect the local unit to test R11 to the greenback.
By 10:39 the rand was trading firmly below the R12/$ level at R11.96.
On Sunday Deputy President Cyril Ramaphosa said at the Nelson Mandela centenary rally in Cape Town that the ANC’s national executive committee would meet on Monday to finalise the transition of SA’s presidency.
Musa Makoni, trader at EasyEquities, explained to Fin24 that Zuma’s possible exit would result in positive sentiment and drive further strength. He expects the rand to strengthen as much as R11.80/$ if Zuma goes. In a scenario where Zuma stays, Makoni said the rand would continue to “hold water” around the R11.93 to R11.97 level, as dollar weakness remains the overriding factor.
TreasuryONE dealer Gerard van der Westhuizen is of the view that the rand could possibly strengthen to R11/$ this week, if Zuma goes.
He also acknowledged that together with local politics, dollar weakness was driving rand strength. “We did not break above R12.20 which is a positive as the level remains to provide support.”
The US will release its inflation data on Wednesday. If inflation is higher, markets expect the Federal Reserve Bank to raise interest rates, providing momentum for the dollar, he said.
Adam Phillips, treasury specialist at Umkhulu Consulting, expects the rand to strengthen to R11.88/$ upon Zuma’s exit, and then further to R11.82. “If today is the day, I am sure there will be a rally in the ZAR, although the market will want it backed up with a clear message going forward from Cyril Ramaphosa.”
Analysts from NKC Economics expect the currency to trade between a range of R11.90 to R12.20.
Rand could reach R10/$
Investec chief economist Annabel Bishop more optimistically expects the rand to strengthen as much as R11.70/$ on Zuma’s exit. Depending on whether Ramaphosa can assume the role of president without conditions that hamper his ability to introduce free market reforms and can eradicate corruption and deliver “rapid economic growth”, the local unit could move towards R11 to the greenback.
“The rand could move towards R10/$ if the up case becomes a growing reality under a truly growth and credit positive Ramaphosa presidency of SA,” she said.
“Financial markets and the business sector favour Cyril Ramaphosa as president of the ANC (and SA), as it is perceived that he will deliver good governance, eradicate corruption, and follow economic policies that support economic growth and lean towards the free market approach,” she added.
As a result business confidence is likely to improve further for the first quarter of 2018, if Ramaphosa is appointed president. “As political uncertainty reduces, so investor sentiment can rise,” she said.
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