Rand rally continues on positive sentiment and political developments

Cape Town - The rand continued its rally following the budget, opening at R11.55 to the dollar on Monday morning.

It reached R11.58 to the greenback before moderating to R11.56 by 09:00.

The “positive sentiment” following the Budget Speech is partly the reason for the local currency’s strength, said Andre Botha, dealer at TreasuryONE.

Even though consumers reacted negatively to the news of tax hikes, ratings agencies have been more positive. “We can expect an unchanged rating by Moody's on March 23,” said Botha.

Other local developments which helped boost the rand last week included rumours of a Cabinet reshuffle to be discussed at the ANC national executive committee meeting on Sunday.

However, the topics of discussion were mainly related to Finance Minister Malusi Gigaba’s budget and ways government can alleviate the pressures of the VAT hike on the poor.

Botha is of the view that a change in Cabinet will continue to boost sentiment in the rand. “We could see a push below the 11.50 level.

“After a bleak back end of last year, it is incredible to see the turnaround in the mood of South Africa, and this can be seen by the reaction of the rand and the risk-seeking behaviour by foreign investors into South Africa,” he said.

Botha added that the rand could continue to gain momentum on political movements.

The ANC’s NEC will meet again on Monday, and markets will be on the watch for a Cabinet reshuffle which could see ministers including Mineral Resources Minister Mosebenzi Zwane sacked, according to a market update by analysts from NKC economics.

NKC expects the rand to trade within a range of R11.45/$ to R11.70/$.

Bianca Botes of Corporate Treasury Management at Peregrine Treasury Solutions added that local developments have outweighed dollar strength.

There could possibly a market correction to R11.65/$ but a Cabinet reshuffle would see the rand rally further, she said. 

However, RMB economist Isaah Mhlanga is of the view that a Cabinet reshuffle may not have a significant impact when it happens. “Far too many analysts have an emotional reactionary stance and forget that political wheels can move very slowly when stakes are high.”

Mhlanga added that proposed names for deputy president - ANC deputy president David Mabuza and ministers Naledi Pandor and Lindiwe Sisulu - should not matter as power vests in the president.

He added that the rand may take pressure from trade data to be released this week. January figures are usually a “big deficit”. Mhlanga said that the rand’s strength this week will largely depend on the direction of the dollar. 

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