Johannesburg - President Jacob Zuma and his deputy Cyril Ramaphosa’s public support for embattled Finance Minister Pravin Gordhan yesterday failed to lift the rand after the currency rebounded in early trade, but fell again as their pledges failed to inspire the markets.
The rand opened at R14.1486 to the dollar but fell to R14.32 around 4pm only to recover to R14.2777 by 5pm.
Earlier, the currency and stocks rallied after Zuma pledged his full confidence in Gordhan but said he could not stop the Hawks from investigating any individual.
The rand has weakened 5 percent against the greenback this week.
Ramaphosa’s support for Gordhan was more emphatic.
Speaking at the funeral of late former sports minister Makhenkesi Stofile in Alice in the Eastern Cape, Ramaphosa said he had confidence in the finance minister and the way he was doing his job.
War against itself
“When a government works well, it should not wage a war against itself,” he said. Ramaphosa said the fact that Gordhan could be facing arrest “should concern us”.
Read also: Gordhan: I have done nothing wrong
He also had a word for state institutions: “Whatever various agencies of government have to do, we should do it in a way that does not destabilise government, that does not destabilise our economy and does not demonstrate to our people that we are a government that is at war with itself.”
The rand strengthened 1.2 percent to 13.95 per dollar at 11.24am while the yield on rand-denominated bonds due in December 2026 dropped 9 basis points to 8.96 percent.
“At least he’s coming out to support the finance minister, that’s helping,” said Ion de Vleeschauwer, the chief dealer at Bidvest Bank in Johannesburg. “That’s calming the market fears a little bit. Every little comment that comes out that’s telling people it’s fine and we’re good, that will help.”
Per Hammarlund, the chief emerging markets strategist at Swedish bank SEB Group, said the rand strengthened along with other emerging markets’ currencies on the back of profit-taking following the dollar rally over the last few days and favourable global risk appetite.
Hammarlund said at one point, the rand strengthened more than the others when Zuma expressed his “full confidence” in Gordhan.
Read also: Gordhan saga rattles the markets
He said Zuma’s announcement was an attempt at damage control and was meant to limit the impact on markets and appease the rating agencies.
“However, he also said that he cannot intervene to stop the investigation, so the issue is not over. Zuma’s faction will likely see strengthening or even stability of the rand as an invitation to increase the pressure on Gordhan. In addition, the rand is no longer particularly undervalued, which increases the downside risk potential,” he said.
He said the rand would be particularly volatile with a weakening bias in the coming days and weeks, adding that he expected the currency to head to R14.36 a dollar “and potentially break through resistance with the next level to break being R14.57 to the dollar”.
Hammarlund said the biggest risk to that view was a dovish speech by Federal Reserve chairwoman Janet Yellen today, “which would send risky assets like the rand higher again, steamrolling any domestic political risks coming from the Zuma-Gordhan struggle”.
The rand’s one-month implied volatility against the dollar remained above 20 percent yesterday, the highest among emerging-market currencies, indicating that traders still saw risks ahead.
* With additional reporting by Bloomberg
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