SARB feud left 'deep tear' in SA's credibility, and rand will bear the brunt - analyst

President Cyril Ramaphosa should be very concerned that his own reassurances regarding the SA Reserve Bank mandate was met with apparent skepticism by the currency markets, political analyst Daniel Silke told Fin24 on Friday.

"What is really troubling for Ramaphosa today - other than the utter disunity on economic policy in his own ranks - is the fact that his own reassurances via the statement issued late Thursday was met with such skepticism in the currency markets," said Silke.

"The damage done by Ace Magashule's statement on SARB has been such that it undermines the credibility of the highest officer bearer in SA - the president. Ramaphosa's reassurances had virtually no effect on the currency markets. It shows a deep tear in SA's credibility and markets are cutting us no slack."

While all emerging markets remain under pressure, the rand is bearing the biggest brunt, mostly driven by local politics, Bianca Botes, treasury partner at Peregrine Treasury Solutions, said on Friday.

"With the rand frankly ignoring technical levels and purely focusing on the fundaments at play, it is safe to assume that the week ahead will be a hard one to anticipate as the market’s fate now lies at the feet of our politicians," said Botes.

She explained that the rand has a weakening bias, but further downside risks would come from a downgrade by Moody's; increased global trade tension; an anticipated decrease in interest rates by the SARB; and continuous policy uncertainty from local government.

"On the other hand, elements that could lead to the rand gaining some ground, would be expectations that the US Fed will decrease interest rates; President Cyril Ramaphosa addressing the SA Reserve Bank (SARB) mandate issue head on and providing some clarity and certainty; and a decrease in global trade tensions."

By early afternoon on Friday the rand was trading 0.72% weaker to the dollar at R15.11/$.

Commerzbank also pointed to "the confused domestic situation" and the rating review that has been postponed to November as causing rand weakness, as well as the renewed debates about the SARB's mandate and independence putting pressure on the rand.

In addition to that, real economic weakness is also playing a part, which is due not least to considerable periods of power outages over the past months, according to Commerzbank.

"The weak growth makes the consolidation of public finances more difficult, which in turn makes it more difficult to restructure state-owned companies," said Commerzbank.

"A vicious circle that can no longer be compensated for by the rand's rate advantage since the SARB has been signalling rate cuts. As a consequence, we see rand weakness."

However, in the medium to long term, Commerzbank is not particularly pessimistic for the rand. It has nonetheless adjusted its rand forecast moderately and sees further potential for rand weakness in the near future.

Andre Botha, Senior Dealer at TreasuryONE, pointed out that US President Donald Trump threatened further tariffs against China and also said he would go ahead with the imposition of tariffs on Mexico, causing emerging market (EM) currencies to weaken.

Furthermore, Friday's non-farm payrolls number is forecast to show a drop in new jobs as the effects of the trade war impact negatively on the US. In his view, the rand is likely to remain under pressure during Friday as the markets wait for this data to be released.

According to Lukman Otunuga, research analyst at FXTM, the fact that the rand remains severely depressed despite speculation over the Federal Reserve cutting US interest rates that has weakened the dollar globally, has highlighted how suddenly domestic factors can weaken the rand.

In his view, matters could well have been even more severe for the rand if this was a week where the dollar remained strong in global markets.

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