Zuma Hurts South African Rand as the New Trading Week Begins
Jacob Zuma’s survival at the helm of South African politics appears to have depressed the Rand at the start of the new trading week.
The currency weakened to 16.64 for a Pound on Monday morning, after opening at 16.44 – a change of 20 cents.
Over the weekend the National Executive Committee (NEC) of the ruling ANC party deliberated as to Zuma’s future as leader and President and were reported to have decided to keep Zuma in power – a press conference today at 14.00 (SA time) is expected to clarify their stance.
The Rand strengthened last week when members of the South African parliament had called a vote of no confidence in the President and rumours swirled that the NEC might bin their leader at the weekend.
We warned though that this was unlikely and market optimisim misplaced.
A group of MP’s had requested that the President step down after he pushed respected finance minister Pravin Gordhan out of the cabinet during a recent reshuffle.
Zuma has also been racked with allegations of corruption throughout his reign.
Concerning the outlook for the Pound to Rand exchange rate, the chart is showing it is moving broadly sideways on the daily timeframe.
Longer-term charts show the pair in a strong downtrend.
The MACD is bearishly piercing below the zero-line.
A break below Friday’s lows at 16.40 would probably result in a continuation lower to a target at 16.00.
Alternatively, a breakout above the previous highs at 17.71 would probably result in a move up to 18.00.
Data for the Rand
Though politics may dominate the start of the week the second half is expected to be dominated by credit rating reviews by S&P and possibly also Moodys.
“S&P is scheduled to provide its latest rating review on Friday — no change in view is expected. We do not know for sure when the more important review from Moody’s will come but we think that it will be either this Friday or next. Currently, expectations are that
Moody’s will downgrade the local currency (LC) and foreign currency (FC) ratings from Baa2 to Baa3, but change the outlook from negative to stable. Markets can be impacted adversely if a negative outlook is assigned, however, we believe a two-notch downgrade is highly unlikely,” said Rand Merchant Bank’s John Cairns in a note to clients.
Data for the Pound
It is a quiet week for UK data with the main event Manufacturing PMI for May, out at 9.30 BST on Thursday, and Construction PMI, out at 9.30 on Friday.
Manufacturing activity is expected to fall to 56.5 from 57.3 – only a deeper decline, however, would be market moving.
Last month Manufacturing PMI reached a 3-year high on the back of a surge in New Orders so the overall view supports a shallower decline if anything.
“We look for PMI to hold onto most of last month’s gains with just a small pull-back 57.0,” said Canadian investment bank TD Securities.
A similar marginal decline to 52.7 from 53.1 is foreseen in construction activity in May, out on Friday, June 2.
House Prices are also out at 7.00 on Thursday.
Of probably more import in terms of sterling’s fluctuations are poll results for the up-and-coming June elections.
The Pound weakened last week after Theresa May’s lead was cut to only 5% from 19%, as the possibility of her having a powerful majority declined.
With the EU pushing for an unrealistic 100bn divorce settlement the chances of a potentially detrimental hard Brexit and reversion to WTO rules are increasing – not falling as the May administration would wish.
