Rand rallies ahead of SONA but Eskom battle looms

The rand continued to firm against the dollar in morning trade on Thursday (20 June), ahead of an important State of the Nation Address (SONA) to be delivered by president Cyril Ramaphosa.

His address to parliament in Cape Town is scheduled to begin at 19:00 local time.

Overnight, the Federal Reserve kept interest rates on hold at 2.5%, in line with expectations, but it noted that a rate cut as steep as 0.5% could be on the cards towards the end of the year, its most dovish stance in over a decade, said Bianca Botes, treasury partner at Peregrine Treasury Solutions.

The rand strengthened leading up to the announcement, gaining a total of just over 1%.

“All eyes will be on president Ramaphosa tonight and his efforts to tackle Eskom, unemployment, growth and policies such as land reform,” Botes said.

On Thursday the rand was trading at the following levels against the major currencies:

  • Dollar/Rand: R14.28  (-0.29%)
  • Pound/Rand: R18.12  (0.09%)
  • Euro/Rand: R16.10  (0.13%)

“Today we will be keeping an eye on retail sales from the UK as well as initial jobless claims from the US.

“We expect ongoing volatility today, especially during SONA tonight. Technical levels don’t mean much in this fundamental-driven environment, however analysts are quite skeptical regarding the current strength’s sustainability,” said Botes.

“The market feels a little unbalanced currently with stock market indices trading higher every day but safe-haven assets like gold have shot through the roof,” said Andre Botha, senior dealer at TreasuryONE.

“It seems strange that we have a risk-on and risk-off play going at the moment and it is probably a case of who blinks first, but for the moment it feels that the short term momentum is on the rand’s side and importers should start to fill their boots,” he said.

Looming Eskom headache

Ramaphosa, however, faces yet another headache from the National Union of Mineworkers – a group he co-founded.

Bloomberg reported that the union is against any plan to split the country’s indebted power utility because it will result in job losses.

There is “uncertainty” rather than job security at Eskom, NUM president Joseph Montisetse said in an interview with Bloomberg on Wednesday.

The union, which has about 15,000 members at the power utility, said the company could return to profit by investing in coal mining, exporting the fuel and selling more electricity to South Africa’s neighbours.

Ramaphosa is expected to unveil new measures to help Eskom. He announced the plan to divide the company into generation, transmission and distribution units in February.

He also vowed to avoid cutting jobs, despite Eskom having about 47,000 workers, a figure the World Bank has said is 66% too high, and debt of at least R440 billion ($30 billion).

Read: 5 key things to watch in Ramaphosa’s speech today

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Rand rallies ahead of SONA but Eskom battle looms