Rand rises to its strongest in a week

“The expectation is that the ANC will receive close to 60%, that as we know would provide a strong mandate” for Ramaphosa, Piotr Mathys, a London-based emerging-markets analyst at Rabobank, said on Wednesday. Anything below 55% would be seen as a disappointment. A good performance by the ANC could push the rand to a R13.80/$ to R14.05/$ range, Mathys said.

A strong showing by the governing party should see the rand test the R14/$ level because of optimism that Ramaphosa would then be able to reshuffle his cabinet and remove Zuma loyalists, Monex Europe analyst Simon Harvey, also based in London, said this week.

Investors are counting on Ramaphosa to push on with fighting corruption and implementing economic reforms, such as the mooted breakup of Eskom, which are seen as being key to the country avoiding a potential downgrade from Moody’s Investors Service.

Moody’s is the only ratings agency with an investment grade on the country and losing that could prompt investors to sell SA assets, pressuring the rand and increasing borrowing costs through higher bond yields.

Ahead of the vote, measures of volatility signalled pessimism over whether the period of relative calm would last. The rand’s
one-week implied volatility against the dollar was at 17.1%
on Wednesday. Only the Turkish lira was expected to have
wilder swings.

The tone among investors is “increasingly cynical” that the election will herald a big change in the direction of the economy, Citigroup economist Gina Schoeman wrote this week in a note prepared after meetings in London. Our medium-term view remains realistically bearish until reforms are actually announced with clear implementation timelines,” she said.