Weekly market report by Andre Botha,
Senior Currency Dealer at TreasuryONE
The first part is over…
With the South African election, a thing of the past and the results tallied, the outcome of the election was mostly in line with projections. As forecasted the ANC got less than 60% while the DA lost a bit of ground with the EFF gaining a little. What does this all mean for the Rand? In short, the outcome brings policy certainty back into the market, coupled with the notion that no coalition government will be formed, and it should inject some positivity that might help the Rand to break lower and maybe test the R14.00 level.
With the first part of the election is over, the second part will be of more interest to the market when President Ramaphosa unveils his new cabinet. In his State of the Nation Address (SONA), the President stated that he would like his Presidency to be remembered for one of economic growth and job creation; thus his cabinet will shed some portfolios and have more resources available in areas that will be crucial to obtain the objective. Should President Ramaphosa stick to his SONA narrative, it could be seen as a positive for the country and the Rand.
The President, however, faces a weak economy amidst global growth concerns, a public sector that is rife with corruption and although the cabinet is a good start for the President, investors and rating agencies from abroad will be on tenterhooks in the medium term to see how the President tackles all these issues.
While the election results have helped the Rand, there are opposite forces currently in the market, with the market waiting for a Chinese retaliation after the US imposed a fresh round of tariffs on them. The break down in the current trade talks leave a void that can only be filled by uncertainty and could make the current Rand strength brief. The worrying sign is that the US dollar is currently a bit softer, which would typically equate in a stronger Rand but we have seen the Rand moving in an opposite direction.
With negative attention being thrown on EM’s at the moment, there is some concern that the current volatility in the Turkish Lira could impact EM’s further. The Lira has lost 13% against the US dollar this year after the Istanbul mayoral vote was annulled, and with the country trying to rerun the election a lot of doubt has surfaced in the political sphere of Turkey. This might spill into EM sentiment and see the Rand fighting from the back foot.
The second part of the election plus the US-China trade deal will be at the market forefront this week as no other top tier data will be released. We believe the Rand will trade in a narrow band between R14.15 and R14.40 with a break in either of these levels signalling good opportunities to buy dollars below R14.15 and sell dollars at above R14.40.
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