Forex Market

Political Scandal Hits South African Rand

The South African Rand sees a sharp decline as the markets digest a damning report related to US currency stashed away in a sofa at the President’s game farm.

USDZAR, H1

As the African National Congress December elective conference draws nearer, the proverbial cat has been thrown amongst the pigeons, as a panel led by the former chief justice concluded its findings into an investigation following the theft of US currency to the value of $580,000 at a game farm owned by the president. The said currency was initially dismissed by Mr Ramaphosa as being proceeds from the sale of game on his farm, but the fact that it was essentially stashed in a sofa, and not declared to the South African Reserve Bank is what leaves a lot of plot holes in the explanation.

As a result of the recent developments, the South African President is considering officially resigning from his position and could possibly face impeachment and legal, and political consequences. On the back of the news breaking, markets reacted sharply, with the yield on 10-year rand-denominated debt surging by 91 basis points, to 11.71%, which represents the most volatile move in a day since the former president Jacob Zuma axed the then finance minister Nhlanhla Nene. This lends credence to the adage about the financial markets being incapable of stomaching political instability and preferring the devil they know, then the devil they don’t.

From an investor perspective, the damning report stoked a lot of uncertainty, more than what the market was anticipating. The premature departure of President Ramaphosa will largely be perceived as negative, mainly because of the progress he was making in terms of rebuilding severely troubled state-owned institutions, as well as the reforms he was implementing in the power generation sector, with a transition to renewable energy. Looking ahead, investors will be keenly eyeing the next developments coming from the upcoming elective conference, as well as parliament. A challenge to his administration may likely be survived in the internal elective conference but in parliament the possibility of backlash is highly probable.

Technical Analysis

In terms of Market structure over the past 7 days, the USDZAR pair had been trading in a range between R16.89R17.25 before the developments discussed above became mainstream. Since then, price broke out of the range impulsively as the rand weakened significantly against the Dollar, hitting a high of R17.95. Current price action is retracing to the top of the broken range, where bulls could find renewed interest to test the bears.

 

 

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