Rand flirts with R11.50/$ as markets await possible Cabinet reshuffle

Cape Town - Rand gains on the election of a new South African president have run their course, say analysts, as markets await a possible Cabinet reshuffle this weekend.

The rand, which opened at R11.62 to the dollar on Friday, strengthened to R11.56/$ during the course of the morning. However, analysts attribute this to external factors or the weakening dollar rather than local politics.

The unit was trading at R11.57/$ by 11:00, and had weakened to R11.62 to the dollar by 12:30. 

The rand reached three-year highs on Thursday, supported by Cyril Ramaphosa's election as president at a sitting in Parliament. “The knee-jerk kicker from the change in the Presidency therefore seems to have run its course,” said Rand Merchant Bank (RMB) currency specialist John Cairns.

• READ: Rand could reach R11.50/$ on #Zumexit, Ramaphosa presidency – analyst

However, there are expectations of a Cabinet reshuffle over the weekend, and the possibility that a new finance minister could deliver the Budget Speech on February 21. But Cairns said the focus of the speech is on the content, and not who may be delivering it.

The deployment of former finance minister Pravin Gordhan, former finance minister Nhlanhla Nene or former Treasury director general Lungisa Fuzile in the role is a distinct possibility, believes Adam Phillips, treasury specialist at Umkhulu Consulting.

• READ: The top five contenders who could replace Gigaba if he gets the boot

In a market update TreasuryOne dealer Gerard van der Westhuizen also said the focus will now turn to the budget and Moody’s decision on the outcome of the downgrade review which is scheduled for March. Even though political issues are seemingly being ironed out, economic challenges remain, he said.

Van der Westhuizen added that further dollar weakness would see the rand test R11.50/$. Analysts from NKC Economics expect the local unit to trade between a range of R11.50 and R11.75/$.

• READ: Ratings agencies note Ramaphosa's election, but swift upgrade unlikely

Investec chief economist Annabel Bishop said if there are no further credit downgrades and a “credit positive” budget, this could see the rand strengthen to R11 to the greenback. 

Bishop said that apart from fiscal consolidation, ratings agencies will be watching the budget for the avoidance of excessive tax hikes which could strangle economic growth.

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