Here’s what could happen to the rand if Zuma steps down before Thursday
After denying the DA’s requests to postpone President Zuma’s state of the nation address (Sona) last week, speaker of the national assembly Baleka Mbete is now reportedly considering moving the date once again.
A request from opposition parties to postpone the President’s State of the Nation Address “is receiving consideration”, the parliament’s speaker Baleka Mbete said in a letter to the country’s main opposition party seen by Reuters.
The opposition parties, including the DA and the EFF, said that they wanted the state of the nation speech, which President Jacob Zuma is scheduled to deliver on Thursday, postponed until after a no-confidence vote on Zuma’s leadership.
Reportedly adding to the mix was a request by the ANC national working committee (NWC), which called for the postponement of the Sona until President Jacob Zuma is kicked out of office, reports the Mail and Guardian.
The national executive committee (NEC) is expected to meet on Wednesday to discuss Zuma’s recall as recommended by the NWC.
While media reported that Zuma had called a special cabinet meeting on Tuesday evening, the office of the presidency issued a statement saying that the meeting was just a routine briefing that had been scheduled months before.
The rand
Will Zuma stay or will he go? It doesn’t matter as far as the rand is concerned.
The currency’s world-beating rally has left it vulnerable to a selloff, regardless of who delivers the speech, analysts including Bank of America and JPMorgan Chase say.
Citigroup said that the State of the Nation speech “sounds like the perfect venue for this type of announcement.”
But Zuma, whose nine-year rule has been mired in corruption and weak economic growth, is standing firm, ignoring pleas from senior members of the ruling African National Congress to step down.
Whatever his fate, options markets are pricing in tough times ahead for the currency, which has rallied 20% against the dollar since its one-year low on 13 November.
The reaction to Cyril Ramaphosa’s election as leader of the ANC in mid-December was “excessive compared to any reasonable expectations” of what he could achieve should he take over from Zuma, according to JPMorgan Chase.
The rand’s implied, or expected, volatility against the dollar over the next three months has plunged since the ANC chose Ramaphosa as its leader. But at 14.6%, it’s still much higher than that of any of its peers, including Brazil’s real and Turkey’s lira, implying traders are hedging against wide price swings.
Credit Agricole CIB, which forecasts the rand to fall 11% to R13.50 against the greenback by the end of the year, says the currency’s risk premium in the spot market seems to have “disappeared.”
“Something’s gotta give,” analysts including Sebastien Barbe and Guillaume Tresca said in a 1 February note. “Most of the positive news has been priced in already.”
The rand has been the world’s most lucrative carry trade in the past past six months, returning 13% against the dollar. But it may struggle to sustain such gains, given that a transition to a Ramaphosa presidency has already been priced in, at least partially.
Moreover, that carry trade is best left to investors with a high threshold for risk. Adjusted for expected volatility, the rand’s implied carry returns over the next month are lower than that of its main competitors and less than half that for the lira.
With reporting from Bloomberg.
Read: Reality check for Zuma
Loading ...