Rand flirts with R14.80/$ on Zuma judgment

Nkandla. (Khaya Ngwenya/City Press)
Nkandla. (Khaya Ngwenya/City Press)

Cape Town – The rand has briefly touched R14.80 to the US dollar after the Constitutional Court ruled that President Jacob Zuma must pay back a portion of the money spent on security upgrades at Nkandla.

At the time the ruling was concluded at around 11:00 on Thursday, the rand had strengthened by 1% against the dollar to record a new four-month high of R14.80/$.

However, TreasuryOne said the ruling showed “no response on the market”.

"The rand had a brief look below R14.80 on the back of the judgment, but for now the rand is still trading in line with other emerging markets," said Wichard Cilliers, chief currency dealer at TreasuryOne.

"The market will wait to see how much Zuma must actually pay back and that we will only know in 60 days," he said. "The R14.80 level will be tested again as we expect emerging market appetite to remain on the front foot.

"At 14:00 today, we will receive SA's trade balance and a negative number can place a bit of a hold on more rand strength."

The Constitutional Court ruled on Thursday that the Treasury must determine how much Zuma must pay back and that the National Assembly erred in dismissing Public Protector Thuli Madonsela's recommendation that the president repay a portion of the taxpayers' money spent on security upgrades at Nkandla.

"The resolution by the National Assembly absolving the president from compliance with the Public Protector's remedial action is inconsistent with the Constitution, is invalid, and set aside," Chief Justice Mogoeng Mogoeng read from his unanimous judgment.

While the markets are unlikely to react on Thursday, news that the Democratic Alliance has officially begun the process to impeach Zuma means there is more to come.

Earlier, Rand Merchant Bank economist John Cairns said in a note that the judgment would be unlikely to cause significant movement in the rand.

“Expect some brief rand volatility after the decision is announced, but no sustained major move in either direction.”

NKC African Economics said in a note that its expected range on the rand on Thursday is between R14.85/$ and R15.15/$.

It said the rand’s strong rally was due to US Fed chair Janet Yellen’s cautious approach to monetary policy.

“As a result, the SA currency benefited from a broad improvement in sentiment towards emerging market assets, which finally saw it breach technical resistance around the psychological R15/$-level.

“The local unit has recouped most losses triggered by the sudden axing of former finance minister Nhlanhla Nene in mid-December, though the same cannot be said for local government bonds and general sentiment toward Africa’s most developed economy.

“Further gains will be limited as traders wait for US payrolls report (on Friday), though Yellen’s cautious demeanour will keep emerging markets on front foot for a while.”
Umkhulu Consulting economist Adam Phillips said Thursday could see another volatile session, with the usual month-end data coupled with the Constitutional Court decision.

“We already saw the market took positively that Finance Minister Pravin Gordhan will respond to the Hawks, but I believe it will be on his own terms,” he said.

Phillips said the judgment will steady the nerves of offshore investors. "Zuma will probably argue that he was going to pay it back," he said. "However, he is now up against Finance Minister Pravin Gordhan's team and that could be interesting."

This follows Mogoeng's judgment, which state that "the National Treasury must determine the reasonable costs of those measures implemented by the department of public works at the president's Nkandla homestead that do not relate to security..."

"The rand has come back below 15.00 on international events," said Phillips. "I think for it to strengthen further we need more good news on the economic side. The drought, unemployment and government finances are factors that cannot be ignored." 

He believes the ConCourt news will keep the rand from flaring up. "Important to watch is the Chinese manufacturing data coming out on Friday as well as the US non farm payrolls."

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