Johannesburg - The rand plunged on Monday, alongside the Russian rouble, pummelled by weaker commodity prices and political uncertainties and leading a wider fall in emerging currencies.
The rand weakened as much as 1.6 percent to touch its weakest in nearly two weeks before recouping some losses, hit also by media reports that President Jacob Zuma was considering firing ministers who opposed him and backed calls for his resignation in November.
At 5pm, the rand was bid at 13.5805 to the dollar, 11.12c weaker than at the same time on Friday.
“Risk sentiment is taking a bit of a knock following the latest political developments on possible cabinet reshuffle on the domestic front,” Jana van Deventer, a trader at ETM said.
While the dollar stayed flat versus a basket of currencies, lower oil and commodity prices dragged the rand and Russia’s rouble lower.
“Oil has come down a bit and that is weighing on the rouble, and some of the commodities like platinum, which suggests there may be a correction in metals prices as well, so it’s a bit of risk off on weaker commodity prices,” said Per Hammarlund, chief emerging market strategist at SEB.
John Cairns, a currency strategist at Rand Merchant Bank, said the nervousness over a possible cabinet reshuffle that hit sentiment last Friday should have settled somewhat over the weekend.
“A move as far as 13.30 is justifiable given where other risk currencies are trading, but we think a small ongoing risk premium will probably constrain the rand from making the full adjustment.”
He said a multi-day direction would continue to be determined by US President Donald Trump, even though there was a lot on the data and events calendar this week.
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“The rand’s reaction to the cabinet reshuffle talk was aggressive, with dollar/rand trading high into the 13.50s at one stage. This highlights just how worried the markets are about local politics.
“Moreover, it shows a renewed sensitivity to political news: by late 2016, the market appeared to have tired with the continued rumour mill.”
Cairns said media reports on the reshuffle did the damage. “According to their (media) sources, Zuma had threatened the cabinet reshuffle at an ANC NEC meeting. Whether Zuma said what was reported is unclear. Even if he did, will he do what he said he would do?”
Cairns said a local cabinet reshuffle aside, US President Donald Trump was the key driver of the rand. “His immigration restrictions have caused some concern - he might be a president who actually does what he said he would do, which includes significant trade protectionism. Combined with Friday’s slightly weaker-than-expected US (gross domestic product) print, the net effect should be rand positive with dollar weakness outweighing some of the minor risk-off.”
Old Mutual Multi-Managers, Dave Mohr and Izak Odendaal, said the direction of the rand would not only impact the inflation and interest rate outlook, but would also influence returns from various asset classes for investors.
“But the rand is also unpredictable, and at the mercy of global capital flows, commodity prices, sentiment towards emerging markets and domestic developments. Given the inherent uncertainty, it is prudent to be appropriately diversified: some assets do well in a strong rand environment, and some benefit from a weak rand.”
- Additional reporting by Reuters.