The rand slumped to a seven-month low on Tuesday (28 May) as an unexpected delay in the appointment of the cabinet stoked concerns that President Cyril Ramaphosa is facing opposition to his reform agenda.
Bloomberg reports that the currency’s slide started when the ruling ANC confirmed David Mabuza would be sworn in as a lawmaker, opening the way for him to be reappointed as deputy president.
It then gathered momentum as investors speculated about the composition of the executive.
“Investors worry that Ramaphosa will not be able to root out corruption from the top echelons of the government as promised, endangering his reform agenda,” said Per Hammarlund, the Stockholm-based chief emerging-market strategist at SEB AB.
“The rand could reverse declines if Mabuza shows commitment to reform measures,” he said.
“Buy the rumour and sell the fact is in full effect right now,” added Wichard Cilliers, a trader at TreasuryOne Ltd. in Johannesburg.
“It’s putting the rand under pressure because investors thought there was a chance that the cabinet would be cleaner. But we need to see the official news about Mabuza, the real deal about what his role will be,” he said.
According to Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, the rand has also not been helped by the US-China, US-Iran and Brexit dynamics.
Combined these factors have created the ‘perfect storm’ for emerging markets, she said.
“The rand quickly broke through key technical levels on Tuesday, declining 2% against the greenback to reach R14.71/$ during the day, as market participants sold ZAR as a proxy for other emerging market currencies.
“The risk-off environment is likely to continue throughout today and with no key data due for release geopolitical factors will remain the key focus,” she said.
The rand was trading at the following levels at 07h40 on Wednesday morning:
- R14.72/dollar (+0.11%);
- R16.44/euro (+0.07%);
- R18.64/pound (+0.04%).