Johannesburg - The rand surged to a five-week high yesterday after President Jacob Zuma dropped a bombshell and withdrew a court bid to block the state capture report and a judge ordered its publication.
This boosted speculation Zuma is a step closer to leaving office.
The rand jumped as much as 1.8 percent against the dollar, the strongest level since September 28.
Government bonds firmed alongside the currency, with the yield for the benchmark instrument due in 2026 dipping 10.5 basis points to 8.655 percent.
On the bourse, the benchmark Top-40 index fell 1.5 percent to 43 787 points while the All-Share index dropped 1.2 percent to 50 338 points.
Dawie Roodt, an economist at Efficiency Group, said: “Remember that the rand, even at better levels, remains undervalued. So even a little good news is likely to be rand positive. Also, obviously our politics play a very important role in sentiments, for example the exchange rate of the rand.”
Zuma is embroiled in a feud with Finance Minister Pravin Gordhan over spending by state-owned companies and on government programmes, including a mooted R1 trillion rand nuclear energy plan.
Zuma’s abandoning the court bid comes amid mounting pressure for him to step down, strengthening the hand of Gordhan, who is seen as key to retaining South Africa’s investment level credit rating.
“A very positive market reaction to President Zuma’s decision reflects how important Finance Minister Gordhan is for investors,” said Piotr Matys, an emerging-market currency strategist at Rabobank in London.
“While the risk of a downgrade has not vanished, fading uncertainty about Gordhan’s future is likely to be welcomed by rating agencies.”
Zuma’s lawyer said he had abandoned his bid to block the publication of the report on whether members of the Gupta family sought to influence the dismissal and appointment of cabinet ministers and awarding of state contracts.
Zuma withdrew his application to delay the release of a report over allegations of political influence by his wealthy friends in the interests of justice, the Presidency said.
“It’s an indication that the country still enjoys institutional strength and that’s a definite plus for investors,” ETM Analytics economist Jana van Deventer said. “The currency could strengthen further if we see more progress on this front.”
The about-turn came as pressure increases for Zuma to resign, with thousands flocking to Pretoria to protest against the abuse of state resources.
The National Health and Allied Workers Union, an ANC ally with about 300 000 members, on Tuesday urged Zuma to step down.
Another ANC ally, the SACP, has also called for his removal from office.
Colen Garrow, an independent economist at Meganomics, said the purchasing power parity (PPP) of the USD/ZAR exchange rate was now estimated at 10.42.
“The extent to which the spot rate trading currently closes with the PPP will depend on sustained improvements in political risk plus improvements in economic risk. Today, we have seen some of the former.”
He said the tilt left in the political economy had not helped.
“If there is to be change, there will have to be change at not only at the top office in the country, but also in cabinet portfolios responsible for the slide in education and manufacturing. What we have seen today is a start, a welcome one. However, there is a lot of work to be done. The slide in the economy didn’t happen overnight. The Reserve Bank’s leading indicator suggests that much - its annualised growth has contracted for 33 consecutive months.”
The rand surged 2.7 percent on Monday after the National Prosecuting Authority withdrew fraud charges against Gordhan he had described as “politically motivated”.
“A lot of the volatility you’re picking up is tied directly to the political risk,” said Mohammed Nalla, head of strategic research at Nedbank, who predicts the rand will extend gains.
“We’ve had a mid-term budget that was reasonably well-received, you’ve got the possibility that the ratings agencies won’t downgrade us in December and now you’ve got this. The rand’s building on some of that shorter-term momentum.”
* With additional reporting by Bloomberg