EDINBURGH — The excitement of Cyril Ramaphosa’s victory in the ANC leadership contest is fading in currency markets. Analysts say that the rand has already priced in Ramaphosa picking up from President Jacob Zuma. The road ahead is seen as hard for Ramaphosa, as he will have a significant battle to implement his plans to clean up on corruption and drive economic growth. This bearish sentiment is unsurprising if you consider the extent to which the corrupt and the captured have been installed across state entities and government departments. Still, the change in the rand’s direction appears to be a blip. In the long-term, South Africa must be better off under Ramaphosa, who is making the right noises, than with someone of Zuma’s ilk, who has struck fear into the hearts of international investors and precipitated country ratings downgrades with his poor policies and bad behaviour. – Jackie Cameron
The rand fell, after clocking up its longest weekly winning run since 2010, as analysts at Rabobank and JPMorgan Chase & Co. said the currency has rallied too far.
The rand weakened as much as 1.3 percent against the dollar, set for the biggest loss since Dec. 7. The selloff on Monday sent the 14-day relative strength index of dollar-rand pairing, which lingered in oversold territory for most of the past three weeks, above 30. The cost of insuring the nation’s debt against default rose the most in almost a month from the lowest level since May 2013, according to CMA prices.
Euphoria following Cyril Ramaphosa’s election as leader of the ruling African National Congress on Dec. 18 helped boost the rand 11 percent last month, the most among the world’s major currencies.
The win has put the businessman, who has pledged to revive the struggling economy and stamp out corruption, on a course to take over from Jacob Zuma as the country’s president. The ANC’s top leadership will discuss a proposal to order Zuma to step down at a meeting on Wednesday, according to three members of the panel who spoke on condition of anonymity.
But Ramaphosa’s victory has been priced in already, said Piotr Matys, an emerging markets foreign exchange strategist at Rabobank. “While Ramaphosa’s long-term economic plan would likely put South Africa on the path of sustainable and balanced growth, implementing it could prove far more difficult than initially assumed by investors,” he said.
There has always been skepticism over the currency’s rally after Ramaphosa’s win. Bearishness on the currency, as measured by options contracts to sell the rand over those to buy the currency in the next three months, known as the 25 Delta risk reversal, remained the highest in emerging markets at about 3 percentage points since mid-December.
“In our short-term model based on credit default swaps and U.S. rates, the rand is about 6 percent too rich,” JPMorgan analysts Anezka Christovova, Carlos Carranza and Jonathan Cavenagh said in a note to clients. The currency fell 0.9 percent to 12.4219 per dollar as of 3:11 p.m. in Johannesburg.
The rand has come up against a resistance that’s preventing it from gaining further, according to a technical study. The Fibonacci Retracement chart shows the currency is close to retracing 50 percent of the slump between 2011 and 2016. If it clears the line, the rand may climb to as high as 10.89 per dollar. But if the resistance proves too strong for the currency, it may fall back to 13.57.