The rand has started the week on the front foot, strengthening as South Africa’s election risk premium dissipates – and it may even test a move under R18 to the US dollar.<\/p>\n\n\n\n
On Monday (20 May), the rand traded as low as R18.11 to the dollar as pre-election polls pointed to a more settling ‘status quo’ for South Africa in the coming elections.<\/p>\n\n\n\n
Contrary to previous polling, which showed the governing ANC move below 45% of the national vote\u2014inviting anxiety and uncertainty of how the country’s political makeup with look after 29 May\u2014the latest numbers show the party in a stronger position.<\/p>\n\n\n\n
According to Investec chief economist Annabel Bishop, an ANC under 45% sparked worries that the ruling party would hop into potentially damaging coalitions, such as a team-up with the anti-business EFF.<\/p>\n\n\n\n
However, an ANC above 45% allayed concerns – with expectations now of an ANC coalition with the centrist IFP party instead.<\/p>\n\n\n\n
The economist warned that another Ipsos poll is expected before the election, which could swing sentiment again.<\/p>\n\n\n\n
“While the polls do show a significant, if not absolutely precise, degree of accuracy, an unexpected outcome where the ANC does decide on a national coalition with the EFF would then result in very severe rand weakness, negatively affecting inflation,” she said.<\/p>\n\n\n\n
In addition to the waning political risk premium, S&P Global on Friday maintained South Africa’s credit outlook, which was widely expected by the market.<\/p>\n\n\n\n
Bishop said that the S&P outcome, while providing some underpinning, was not the main driver of the rand, “which is likely to try the key resistance level of R18.00\/USD this week<\/strong>, with foreign purchase of SA bonds strongly positive this quarter to date”.<\/p>\n\n\n\n She noted that other factors are also at play, favouring the rand. These include:<\/p>\n\n\n\n By 15h30 on Monday the rand was trading slightly weaker against major currencies:<\/p>\n\n\n\n\n