The rand dropped sharply on Friday, leading emerging market currency declines against the dollar amid speculation that President Jacob Zuma is preparing to fire his deputy Cyril Ramaphosa days after removing another critic from his Cabinet.
The rand dropped more than 1.5% and traded 1.48% weaker at R13.68/$ by 12:45 in Johannesburg, bringing its slump this week to 2.9%, the most since the five days ending August 4. The currency’s one-week implied volatility against the dollar jumped 61 basis points to 15.7%, the highest in more than two months.
Rising political uncertainty ahead of the ruling African National Congress’ leadership election in December is roiling the rand at a time when prospects of rising interest rates in the developed world are weighing on emerging market currencies generally. South Africa’s currency is the worst performer after Argentina’s peso among developing nation peers this half.
“The rand has weakened more than its peers, which tends to indicate that it is domestic factors causing a selloff,” said Halen Bothma, an economist at ETM Analytics.
“Rumours circulating about President Zuma possibly instituting another Cabinet reshuffle have ruffled feathers about the rand. It places great uncertainty on how the ANC elective conference will play out in December.”
Zuma fired higher education minister Blade Nzimande, leader of the Communist Party, from his Cabinet on Tuesday in a reshuffle seen as a move to strengthen his support base before the ANC’s leadership conference.
Nzimande is a supporter of Ramaphosa to take over from Zuma as head of the ANC. The president is backing Nkosazana Dlamini-Zuma, the former head of the African Union Commission and his ex-wife, for the post.
TreasuryOne dealer Wichard Cilliers told Fin24 the reaction in the ZAR currently, is on the back of the rumour mill that Zuma is looking to sack Ramaphosa.
“The market is just nervous because of all this political noise currently around.
“The US Federal Reserve is also playing its part as there is renewed optimism for interest rate hikes and we see the yield curves pricing in the hike. Some emerging markets are a bit on the back foot, but the ZAR is leading the charge.”