By Matthew le Cordeur
Cape Town – While South Africa counts its local election votes on Thursday, the rand remained flat at R13.93/$, but it could get an unexpected boost from the Bank of England’s (BoE) Super Thursday.
The all-important vote – dubbed Super Thursday – will be the decision by the post-Brexit BoE to cut interest rates by 0.25% from the current 0.50% while leaving its asset purchase programme unchanged at £375bn, according to Treasury One and RMB.
It’s special because the decision will reverberate across global markets. The decision could even cause the rand to appreciate below R13.80 to the dollar.
“(It) will add further impetus for global investors to seek yields and will once again be rand positive,” Wichard Cilliers, head of dealing and director at TreasuryOne, said on Thursday.
“If the BoE surprises by not only cutting rates by more than 0.25% but by adding additional stimulus, the rand would rally hard and a sustainable break of 13.80 is on the cards.”
RMB analyst Isaah Mhlanga concurred on Thursday: “The rand has appreciated aggressively post the Brexit rally. Further gains look unlikely, but if the BoE delivers more than expected, it could be more happy days for the local unit over the short term.”
Read also: 21 banks face huge losses if BOE cuts rate: warning
Local elections won’t cause rand volatility
Looking domestically, the local elections shouldn’t cause much market movement unless something radical happens, said Cilliers.
Umkhulu Consulting’s Adam Phillips agreed on Thursday: “The results are still being counted, but unlike UK polls it looks remarkably like predictions are going to be fairly accurate.”
“With the local elections done and the votes being tallied it’s still too early to know who’s in the lead, what is obvious at this early stage is that it is going to be a hotly contested election in the major metros,” Cilliers said.
“While it’s super Thursday in global markets, it’s a Tale of Three Metros and three political parties locally as the ANC, the DA and the new kid on the block – the EFF – wait to see their fate in the highly-contested metros of Tshwane (Pretoria), Nelson Mandela Bay (NMB) and Johannesburg (Joburg),” said Mhlanga.
“So far the result would spell that the ANC is losing all the three metros to the DA, but it is too early to make such conclusions,” he said. “Suffice to say that there will be some coalitions in either Tshwane or Joburg once the counting is finished.”
Phillips said that when the results come out late on Friday the rand will initially react before settling back. “Until then it looks like the technical traders will enjoy the move back to 13.90 and might push it stronger” on Thursday, he said. – Fin24
