Why the rand is subdued after Ramaphosa’s cabinet reshuffle

 ·27 Feb 2018
South Africa Rand Money Notes Coins

The rand retreated against the dollar in muted trade on Tuesday, as South Africans awoke to the news of a late night cabinet reshuffle by new president, Cyril Ramaphosa.

The local unit strengthened to a three-year high to trade at R11.52/dollar leading up to Monday evening’s announcement, before falling slightly to R11.57/dollar overnight.

Ramaphosa has been the main driver behind the rand’s recent ascendancy, following the resignation of scandal plagued former president Jacob Zuma. A softer dollar has also helped however, leading to some analysts suggesting that the rand is approaching over-bought levels, amid talk that the new head of the US Federal Reserve will steer a steady course, Reuters reported.

According to Bianca Botes of Peregrine Treasury Solutions, the reaction in the rand was subdued when compared to the more dramatic weakening moves that were evident when Zuma reshuffled his cabinet. The reason, she said, is twofold:

  1. Markets largely anticipated the reshuffle and a big portion of strength has been priced in; and
  2. The composition of cabinet resembles the pressure Ramaphosa is under to maintain a “united” party. Controversial placements such as David Mabuza as deputy president speak to the balancing act Ramaphosa is performing and indicate that, although transformed leadership has taken place, the party as a whole has not been transformed.

“The good news is that Nhlanhla Nene has been appointed finance minister and Pravin Gordhan is minister of public enterprises,” said Botes.

“These appointments to key positions will assist Ramaphosa in the clean-up of these departments following state capture and mismanagement and thus provide support to the rand, the analyst said.

“The bias for rand strength will remain in the short term as the field is dominated by key political events, however we do foresee some division in the ANC as Ramaphosa moves to clean up government moving forward which will see some tension remain in the market,” she said.

By 08h00, the rand traded at the following level against the major currencies:

  • Dollar/Rand: R11.57  (0.22%)
  • Pound/Rand: R16.15  (0.12%)
  • Euro/Rand: R14.26  (0.28%)

Read: Ramaphosa’s massive cabinet reshuffle – including a new finance minister

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