CPI, Zuma rumours push rand under R13/$

Cape Town – The rand dipped below R13 to the US dollar on Wednesday on positive consumer inflation data and rumours that the ANC leadership will discuss the removal of President Jacob Zuma at its weekend National Executive Committee (NEC) meeting.

The rand opened at R13.10/$ and traded as low as R12.98/$ on Wednesday morning; it continued to trade stronger on the back of rumours of Zuma’s possible ousting, according to TreasuryOne. Further, the lower-than-expected inflation of 5.3% could lead to a rally in the currency.

This is the lowest inflation rate recorded since December 2015. TreasuryOne expects the Reserve Bank to leave interest rates unchanged. 

READ: Rand rallies on report of Zuma removal talks

Bloomberg reported on Tuesday that the NEC is due to discuss a motion of no confidence in Zuma that has been filed by opposition parties in Parliament. Some members of the panel will also raise the possibility of the ANC taking the matter into its own hands, according to the party officials, who sit on the decision-making panel.

As a result the rand gained as much as 1.5% against the dollar.

“It was a classic ‘buy the rumour’ trade, and the market loved it,” said dealer Phillip Pearce.

“The rand could continue lower if the market continues to gobble up the ANC rumour,” he added.

RMB economist Isaah Mhlanga added that the rand crosses may trade up in anticipation of the Federal Open Market Committee minutes, which will reveal details of the Fed’s balance sheet profile.

According to NKC African Economics, the rand still remains vulnerable to US monetary policy tightening. “Markets are closely watching [the Donald] Trump administration for any clues about policy changes that could either boost or decrease US growth and inflation,” said the report.

Further, the uncertain future of fiscal policy following former finance minister Pravin Gordhan’s removal has “blown” credibility regarding the path towards fiscal consolidation. The credit downgrade to junk status has seen the rand lose the ground it gained earlier in the year.

The rand was trading at R13.02 at 12:10.

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