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Currency traders cautious on rand's future despite gains

The rand has been trading at levels seen before President Jacob Zuma sacked Finance Minister Nhlanhla Nene.

FILE: South African rand. Picture: EWN

JOHANNESBURG – Despite the rand making gains against major currencies following the decision to drop charges against Finance Minister Pravin Gordhan and the release of the state capture report, currency traders are reported to be cautious about the future of the rand.

The local currency has strengthened over the past two days

The rand has been trading at levels seen before President Jacob Zuma sacked Finance Minister Nhlanhla Nene, but traders say they are still being cautious with regards to what happens next.

Rand Merchant Bank currency strategist John Cairns says: “I think most people in the market would think that if we’re going to have change in government it would lead to reduction in political risk. Perhaps what the markets are telling us is that we’re not there yet. We’re not at that end stage yet.”

He says it’s very difficult to predict the markets, as there are two options when considering the future.

“Economics suggests the rand should strengthen, politics suggests the rand should weaken, choose your camp.”

He says the markets have been digesting the latest news regarding the State of Capture report and many are adopting a wait-and-see approach.

The rand's ups & downs the past year

The rand's performance vs. the dollar after major political events over the last year, including Nhlanhla Nene's sacking, the Pravin Gordhan charges and the release of the state capture report.

MORE GAINS AFTER COURT RULING

Analysts said the court ruling was an affirmation that key state institutions remained independent, amid concerns that Zuma’s allies have tried to exercise undue influence on the government, including the appointment of ministers.

“It’s an indication that the country still enjoys institutional strength and that’s a definite plus for investors,” ETM Analytics economist Jana van Deventer said.

“The currency could strengthen further if we see more progress on this front.”

Government bonds firmed alongside the currency, with the yield for the benchmark instrument due in 2026 falling 11 basis points to 8.65%.

Stocks however bucked the buoyancy, with the benchmark Top-40 index closing 1.37% weaker at 43,835 points while the All-Share index fell 1.21% to 50,384 points.

Traders said investors were rethinking their long-held bets of a 8 November victory for US Democratic candidate Hillary Clinton given signs her Republican rival Donald Trump could be closing the gap, piling pressure on global stocks.

“We’re seeing safe-haven buying on the back of concerns on Donald Trump,” said a trader at Avior Capital Markets.Trading volumes were below par, with around 236 million shares changing hands, compared with last year’s daily average of 296 million, according to preliminary bourse data.

(Edited by Leeto M Khoza)