The rand and the Cyril Ramaphosa factor

Bloomberg reports that investors are backing the rand on prospects that market favorite Cyril Ramaphosa may soon become the country’s leader, while a poor performing dollar, as well as rising commodity prices, means that the stars are aligned for South Africa’s currency early on in the new year.

As a result, the rand touched its strongest level in more than two years on 28 December and remained near that level in afternoon trade on Wednesday (3 January), reaching an intra-day best of R12.30, up a percent against the dollar.

The Bloomberg Commodity Index climbed to a 10 month high on Tuesday after rising for 13 consecutive days, the longest streak on record. “That’s bolstering the rand because raw materials including coal, iron ore, and precious and industrial metals account for more than half of the country’s export earnings,” the news agency said.

“The rand remains very much a commodity currency,” George Glynos, managing director at ETM Analytics in Johannesburg told Bloomberg.

“You can’t tell where the rand is going unless you have a seriously good take on where commodity prices could go,” though a number of other variables also affect the exchange rate, he said.

The local unit has rallied more than 6% since Ramaphosa, who has pledged to revive the struggling economy and stamp out corruption, was elected leader of the ruling African National Congress on 18 December.

Despite the rand’s strong performance, Bloomberg’s analysts warned that there are signs the rally may be nearing its end.

The 14 day Relative Strength Index for the dollar versus rand has been below 30 for 11 straight days, the longest run in more than 15 years. A level below 30 is a sign to some analysts that a security may have fallen too much, too fast and is due for a rebound.

Looking ahead, Bloomberg said that investors will be closely watching Cyril Ramaphosa, the new leader of the ruling ANC. “February’s budget will be crucial, signaling whether Ramaphosa, who has prioritized stimulating the economy and stamping out corruption, is able to assert his authority over president Jacob Zuma’s administration and if South Africa has done enough to avoid more credit-rating downgrades.

“Investors will also look for any hints as to whether Ramaphosa will try to force Zuma, whose term runs until 2019, to step down early.”

Read: 5 South African stock picks for 2018

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The rand and the Cyril Ramaphosa factor