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Can the South African rand hold its gains?

Following the election of Cyril Ramaphosa as the new president of the African National Congress on 17 December 2017, there has been a positive reaction from the South African rand.

Shaun Murison @ShaunMurison_IG
Senior Market Analyst, Johannesburg

Publication date : 2018-02-06T15:16:13+0000

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While President Jacob Zuma refuses to vacate his seat as leader until countrywide elections next year, the African National Congress (ANC) National Executive Committee has seen a late motion to recall him, in an attempt to re-establish trust in the political party. Reports suggest that the president’s recall now appears imminent, although the timeline remains unclear.

The rand has recently traded to its best levels against the dollar since May 2015, and remains firm in a consolidation against the US dollar. However, until the current double bottom pattern that has developed, it is difficult to know where the next move will be. If the descending trendline holds as resistance, there is the potential for more gains for the rand.

Rand chart

Rand chart

Rand chart

Further appreciation of the rand can be attributed to developments around ailing State Owned Enterprise (SOE) Eskom, South Africa’s power and energy utility. A 13 board member shake up, including a newly appointed chairperson, sees the presidency removing those former executives tainted by allegations of corruption.

Upcoming catalysts to note

The 8 February will see the South African President’s State of the Nation Address (SONA), which may yet be presented by President Zuma, although that currently has yet to be confirmed one way or the other.

Therefore, the Budget Speech on the 21 February will be critical. Not just to set out the finances, but also knowing that Moody’s Investor Relations will be looking closely at the event, before releasing their next review on South Africa’s sovereign credit ratings on the 23 March. Moody’s is the last of the three major ratings agencies to maintain South Africa’s local currency debt at an investment grade. Should the agency lower the local currency debt, major outflows are expected in the local bond market (in turn weakening the rand) as South Africa would be removed from major global Bond Indices.

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