While the rand's movements in recent weeks has been dominated by global events, the local unit will be influenced by the outcomes of the national elections on May 8, and would strengthen on a majority win for the ANC, analysts have said.
In a market note on the rand's potential movements following the elections, Peregrine Treasury Solutions corporate treasury manager Bianca Botes was among those who shared views on which way the rand would possibly sway.
"We expect knee-jerk movements as the winning party is announced, which will largely be driven by international trade in the local unit," Botes said.
Markets would view a solid win of the ruling party ANC positively. This is because of the "trust and sentiment" in current President Cyril Ramaphosa and his ability to clean up the party, and drive policies which are "pro-economic growth," she explained.
A majority win for the ANC would be positive for the rand, as markets are familiar with the governing party's policies. But a coalition government would "push the rand towards negative terrain," Botes said. This is because a coalition would reduce Ramaphosa's ability to "drive sentiment, stability and economically conducive policies," she explained.
Botes further unpacked that a coalition government between the ANC and the EFF would be perceived more negatively than one with the DA, due to the latter party's "more balanced" approached.
Following the elections, markets will shift focus on what the ruling party will do to "clean up their house and the policies that they drive."
"The rand is likely to gain some momentum to target the R13.50/$ level in the period immediately following the election. In fact, if the ANC secures a two thirds majority win, we could be in for a second Ramaphoria rally – Ramaphoria 2.1, if you like," Botes said.
But this rand strength might not be sustainable, if problems like Eskom continue to exist. "Many feel that the governing party simply does not have the ability to turn the ship around," she said.
"No matter what the election results return, economic growth will remain sluggish throughout 2019, especially should rolling blackouts continue. At the same time, unemployment will remain high for at least the next 12 to 18 months, regardless of policy and governing party.
"Neither of these structural problems can be resolved swiftly and they will continue to plague the South African economy in the medium term," Botes explained.
Following the Ramaphoria rally, the rand would "succumb" to the structural pressures and revert to "realistic levels" between R14.50 to R14.80, she added.
TreasuryONE analysts are also of the view that the rand would strengthen to levels below R14/$ if the ANC gets a win of more than 57%.
"An ANC coalition with the EFF would be perceived negative from investors' point of view and could have a negative impact on a ratings decision by Moody’s - which is the only ratings agency which has SA at investment grade status.
"This will impact negatively on consumer confidence and thus have a negative impact on economic growth," TreasuryONE noted.
TreasuryONE is also of the view that an ANC coalition with the DA would have a negative impact, but to a lesser degree. This coalition would slow down on structural reform measures required in the economy, TreasuryONE said.
The best case scenario for the rand would be an ANC majority win, TreasuryONE commented, with ANC/DA coalitions at provincial level.
TreasuryONE added that global events will continue to play a major role on the rand's movements, but local events will have a more significant impact next week.
Following elections, TreasuryONE expects the rand to trade within a "relatively narrow band" with a bias to strengthen against major currencies. A close eye will be kept on the announcement of the cabinet, both of its size and who may serve as ministers – this will be the first indication of the president's intent to combat corruption and focus on fiscal discipline, TreasuryONE said.
Pricing in Moody's
Kim Silberman, fixed income analyst at RMB Global Markets Research, indicated that if the ANC got a win at 55% or below 55%, then the market will react negatively. This would see the rand spike to R15/$. This would be short-lived. "We expect it (the rand) would return to around R14.50/$," she said.
The market would then start pricing a change in rating agency Moody's outlook on the credit rating from stable to negative at its next scheduled review in November. "The currency may start to weaken towards R15.00/$ as we get closer to November," she said.
On the flipside, a win for the ANC near 60% would see the local unit rally below R14.00/$, towards R13.50/$, Silberman said. A win for the ANC between 56% to 58% would see little move in the currency, she added.
"We expect the currency may weaken to around R14.70/$ between now and November. If Moody’s does not alter SA’s rating or the outlook associated with the rating then December could see a rally in the currency below R14.50/$," Silberman said.
Investec Economist Lara Hodes echoed views that markets have priced in an ANC majority win. "Markets would likely favour such an outcome, which would be expected to cause the rand to strengthen."
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