Cape Town - The rand firmed more than 1% on Monday as the market digested news of the new Eskom board and reports that the ANC’s Top 6 are discussing the exit of President Jacob Zuma.
These developments do create more positives for the local unit ahead of the Moody’s announcement in March but it remains to be seen whether this will be enough to help the rand stay in the World Bond Index, said TreasuryOne dealer Gerard van der Westhuizen.
By 12:04 the rand was trading 1.08% firmer at R12.03 to the dollar from its previous overnight close. It touched R12.02 to the greenback earlier in Monday's session. The rand last traded under R12.00/$ on May 24 2015.
Some of the main focus points on the economic calendar this week will be the US government shutdown (ongoing); the World Economic Forum (from Tuesday); the Bank of Japan policy decision (Tuesday); South African CPI data (Wednesday); Eurozone PMI data (Wednesday); the European Central Bank policy decision (Thursday) and US and UK GDP data for the fourth quarter of 2017 (Friday). However, analysts agree that the big event to keep an eye out for this week will be any developments on the exit of Zuma, and whether proceedings will start this week.
The rumours surrounding Zuma's exit heated up this weekend, with the ruling party announcing on Saturday that it will ask Zuma to step down and if he won't do so, the national executive committee will force him to resign.
Also on Saturday, the government announced several measures to strengthen governance at Eskom, including the appointment of a new board and a recommendation for a credible new CEO.
This should provide some firing power in the arsenal of Finance Minister Gigaba as he seeks to restore investor confidence among foreign investors, said Van der Westhuizen.
RMB currency strategist John Cairns said the global negatives from the US government shutdown are offsetting the positives from local politics. There is nevertheless scope for a break lower, with 12.00 being the first target, he said.
In addition to domestic political developments being rand positive, Cairns is expecting further optimism as "the SA contingent at Davos talks the talk".
He said South Africa is reportedly even touted as THE emerging market story of 2018.
"The constraint for the rand is the offshore environment and specifically the shutdown in the US government due to the failure of politicians to sign a new budget.
"The market has not panicked on the development but risk-off is evident and all high-risk and commodity currencies have pushed weaker, despite the initial weakness in the dollar. Expectations are that the shutdown will not last long but the longer it does, the more worries will grow," said Cairns.
* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.