The definition of a developing country is a place where politics trumps economics. So although the recent Rand exuberance of global forex traders baffles most South Africans, it reflects fresh hope on the political front after years of decline. The municipal elections broke a logjam that gave the country a dose of Chinese drip torture. The rest of the world fretted about SA’s levers of State being pulled by crony capitalists. Before the elections, the power of these plunderers of the public purse appeared absolute. These profiteers miscalculated. They had banked on an entrepreneurial politician who exercised a tight grip on the ruling ANC. But his power is power built on a network of patronage. And that is something which gets seriously eroded when, overnight, the voting public eliminates thousands of beneficiaries. To the outside world, the ANC’s loss of control over more than R100bn in big metro budgets is being interpreted as the beginning of the end of an effective one party state. More so, the world believes if the ANC is to survive as the ruling party it simply has to now must adopt economic reforms long urged by ratings agencies, the IMF, the OECD and even its own Finance Minister. Before the municipal elections there was little incentive for reform. Mr Market is betting the penny will now drop. Or, at the very least, that end of one party dominance eliminates a growing risk of SA sliding into the Zimbabwean nightmare. Add in a supportive global environment, and the Rand’s powerful recovery should be no surprise. But in the same way as it was pricing in probable disaster, the currency is now traded at a level expecting imminent transformation. That’s unlikely. In truth, it provides an ideal opportunity for investors to exchange their once battered Rands for hard currency. – Alec Hogg
By Matthew le Cordeur
Cape Town – The volatile rand was back to its winning ways on Thursday trading 1.66% stronger to the dollar at R13.29 by 08:30, as yield players return to their risky emerging market currencies.
“Risk on” is back after a day’s break, said Umkhulu Consulting’s Adam Phillips in a note on Thursday. “I would think that my R13.20/$ support level is going to be tested,” he said.
Despite good support coming in for the dollar on Wednesday, it all came to a short-term end at about 20:00 when the minutes from the July US Federal Reserve meeting showed that the majority did not favour putting up rates soon, Phillips said.
“The market had got ‘puffed’ into thinking that a rate hike could happen after several members made statements on Tuesday that rates could move up in September,” he said.
An interest rate hike in the US will likely see the rand deteriorate, so analysts are watching the US Fed with a keen eye to see what decision they might take.
South Africa – which slipped away from a rating downgrade earlier this year – is now the best performing emerging market for bonds and currencies. However, analysts caution that this could change very quickly.
The rand was also trading 1.22% stronger at R17.36 to the pound and 1.27% stronger at R15.03 to the euro.
Rand last year depreciated by over 25% against the dollar. This year, so far, it has gained by about 15% against the greenback.
Remarkable— Sure Kamhunga (@sure_kamhunga) August 12, 2016
When will the US Fed end the good party?
The Fed’s role is often said to be to take away the punchbowl just when the party is getting good, RMB’s John Cairns said in a note on Thursday.
“But we do not seem to be there yet,” he said. “The minutes showed that, as of late July, ‘some’ Fed decision-makers said they would like to raise rates in September, but that the majority wanted more evidence of growth and inflation before acting.
“The minutes can’t be said to have surprised anyone, but there is still relief that the Fed did not take a more hawkish tone,” he said. “So the party continues and risk assets can resume their rally.”
Local politics impacts rand
He said the rand’s underperformance unwound on Thursday as local political news turned more positive.
“Governments for all metros seem agreed, although some uncertainty remains over Johannesburg,” he said.
RMB analyst Gordon Kerr added that some “decent rand strength was noted once the EFF confirmed that it will be voting alongside the DA in the major metros”.
SA has reclaimed the title as Africa's largest economy from Nigeria in dollar terms in the backdrop of the Rand gaining on major currencies
— Dominic Chimhavi (@DChimhavi) August 10, 2016
On the bonds side, it was just another range-bound market day, according to Kerr. “It’s been a while since we have traded in such a tight range, with the market becoming a bit desperate for something to happen,” he said.
“On the data front, retail sales disappointed to the downside, continuing to highlight the weak growth fundamentals,” he said. “While the data saw the dollar/rand trade lower, this proved to be short-lived, with bonds not reacting on the move.”
The next important event is when US Fed chair Janet Yellen speaks at Jackson Hole in the US on August 26.
“What is clear is that employment is not a concern in the US, it is rather inflation,” said Phillips. “The next Fed meeting is around September 21 and already the dollar bulls are showing their concern.
“I would think a rate hike is unlikely and from there the next meeting will be too close to presidential election to do anything,” he said.
Fin24
Source: http://www.fin24.com/Markets/Currencies/rand-goes-below-r1330-but-when-will-the-party-end-20160818
