Rand rallies over 4% as Ramaphosa takes ANC top job in close contest

UPDATE 21:07: The rand was trading slightly weaker at R12.77/$.  

Geoff Blount, managing director of BayHill Capital, said the local currency may weaken further. He said markets had appeared to price in a Ramaphosa slate victory, rather than a “hung” NEC.

"Hence, we expect the rand and the domestic-facing stocks to weaken [Tuesday] after their recent rally. Some of the euphoria will be repriced out of the market and it will retrace some of its steps as the reality sinks in," he said. 

In addition to Ramaphosa the ANC Top 6 are Mabuza, deputy president; Ace Magashule, secretary general; Jessie Duarte, deputy secretary general; Gwede Mantashe, national chairperson and Paul Mashatile, treasurer general.

UPDATE 19:55: Rand retreats from its high of R12.54/$ shortly after the announcement of Ramaphosa's victory over Dlamini-Zuma for party president. However, the unit is still trading 2.76% firmer at R12.73 to the greenback.

Bianca Botes of Peregrine Treasury Solutions pointed out that, heading into the election announcement, the rand briefly slipped below R12.60/dollar, touching on R12.58/dollar and then moving back to R12.60/dollar immediately following the announcement of David Mabuza as ANC deputy president.

Cape Town - The rand rallied to a nine-month high under R12.60 to the US dollar as news broke that Cyril Ramaphosa won the ANC leadership race at the party's 54th National Conference at Nasrec in Johannesburg.

But it was not only the markets that erupted in cheer. While South Africa was waiting with bated breath for the result, the visuals coming from Nasrec showed jubilant crowds and Ramaphosa looking far happier than his opponent Nkosazana Dlamini-Zuma.

Not even rumours of a recount could dampen the spirit at Nasrec, with delegates singing as they as they bided their time until the announcement of the official result was made at around 19:00. 

TreasuryOne dealer Wichard Cilliers earlier told Fin24 in a snapnote that the rand remained strong at R12.60/$ despite the rumour of a recount as "Cyril has won but the NDZ camp is unhappy with the result".

The crowd lifted the roof as the announcement came that the deputy president received a total of 2 440 votes, while President Jacob Zuma's ex-wife and the former African Union chairperson received 2 261 votes.

This meant there was a difference of 179 votes between the two candidates. 

The rand had been strengthening for the past month, in part due to sentiment that Ramaphosa, who is seen by some as more business friendly than Dlamini-Zuma, would claim the top spot. 

Just over a month ago, on November 13, the local unit was trading at R14.47 to the greenback. 

Nearing R12.50 to the dollar 

The rand was trading at R12.54/$ shorty after the announcement - over 4% firmer than its overnight close on Friday. The unit earlier traded at R12.58/$.

The local currency was trading as strong as R12.31/$ just before former finance minister Pravin Gordhan and his deputy Mcebisi Jonas were axed in a midnight Cabinet reshuffle at the end of March 2017.

In early morning trade on Monday the local currency was testing levels of R12.75 as the Australian and New Zealand markets came online, but for most of the day it fluctuated between R12.80 and R13.10 to the greenback.

TreasuryOne dealer Gerard van der Westhuizen earlier predicted that a Ramaphosa win would be seen by the markets as a positive sign, and could see the ZAR trade stronger towards R12.50/$.

"We have seen the market starting to price in a Ramaphosa win since early Friday and therefore a victory for Dlamini-Zuma could hit the ZAR hard and run up past 14.00 is a big possibility," he said.

Lesiba Mothata, an economist of Alexander Forbes, told Fin24 shortly after the announcement of Ramaphosa's election that when market expectations get confirmed - as has been the case with Ramaphosa's win - the rand could gain even further.

"There has been a political premium in the rand and SA bonds. The news of Cyril's election means he is well placed to turn the economy around," he said.

He added that at fair market calculation the rand should trade at around R12.50 to the dollar. 

"When the political noise gets removed from the market - and bonds are stronger as rate increases are likely to continue from here and ratings downgrades are likely to slow - the rand should go even better than R12.50," said Mothata.

On the other hand, economist Mike Schüssler told Fin24 that, while the rand has strengthened quite a lot, he thinks it has over-reacted. In his view, the rand will pull back again over the next few days and weaken against the dollar and other currencies "as people realise it was not a clear-cut victory.

"The rand over-compensated for a Ramaphosa vicory and investors will see a much weaker rand if we do not solve economic problems quickly in next few months," commented Schüssler.

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