The South African Rand enters the new week on the back-foot after recording a spectacular plunge on Friday.
The move lower in ZAR comes on the back of what appears to be a fresh bout between President Zuma and the finance ministry.
Remember the Nene saga? Financial markets certainly remember what happened the last time Zuma tangled with a solid Minister of Finance.
Hence we are seeing ZAR down by over 3% against the US dollar and 2.8% lower against the pound on news of rumblings between finance minister Gordhan and his boss.
Gordhan said on Friday that Tom Moyane, the South African Revenue Service commissioner, showed “totally unacceptable” behaviour by defying orders to halt a management and systems overhaul.
He threatened to resign after Zuma told him that Moyane should keep his post, Johannesburg’s Business Day newspaper reported, citing unidentified government sources.
Markets are reading between then lines - Moyane is seen as close to Zuma and therefore there is a heightened risk of poor decision making by the President for the sake of maintaining patronage.
“I think Mr. Moyane is a sideshow, this is a power battle over the ministry of finance. All this is at the expense of stability in the country,” Jannie Rossouw, head of the University of the Witwatersrand’s school of economic and business sciences told Moneyweb.
Zuma’s spokesman Bongani Majola issued a statement expressing “full confidence” in Gordhan.
There is also the issue of an apparent investigation into Gordhan by the anti-corruption Hawks unit.
In a statement released on Friday Gordhan said:
“I want to publicly state my version of events in relation to a letter I received from the Hawks on Thursday 18 February 2016, informing me that I must answer three pages of questions, keep the letter confidential and not interfere with ‘state witnesses’, without indicating who such witnesses are. I believe this was meant to intimidate and distract us from the work that we had to do to prepare the 2016 Budget.”
Furthermore, “There is a group of people that are not interested in the economic stability of this country and the welfare of its people. It seems they are interested in disrupting institutions and destroying reputations.”
The bottom line? The South African finance ministry is still not secure and currencies hate uncertainty.
Game-Changer for the GBP v ZAR
The move higher in the pound to Rand exchange rate is significant as it snaps the stranglehold the African currency has enjoyed since early January.
The move above 22.00 ensures that we could have an effective base forming, particularly as we get the sense that sentiment towards sterling is turning more positive after a brutal week.
Sterling has been hammered over fears surrounding Brexit intensify, but there is only so far you can push a currency on pure speculation over an unquantifiable event.
Buy ZAR say UniCredit
Looking past the mechanisations of South African politics, there are reasons to be more optimistic on the rand's outlook.
We believe that a number of factors are coming together for a more supportive backdrop for EM commodity currencies in the weeks ahead," says Kiran Kowshik at UniCredit Bank, "positive Chinese policy rhetoric is certainly helping: on the first day of the G20 meeting, we had officials stepping up constructive fiscal, FX and monetary policy language."
UniCredit have launched a recommendation to buy the rand against the euro and US dollar on the back of the improving commodity backdrop.
Kowshik has actually highlighted the Moyane / Gordhan relationships amonst the main risks to the trade.
"The main risks stem predominantly from local factors such as budget policy implementation risk, given reports of friction between South African finance minister Pravin Gordhan and the head of the tax authority, Tom Moyane," says Kowshik.
Other risks include likely weaker January trade balance (Monday) and headline 4Q GDP (Tuesday).
"However, we think global factors (China, commodities, broader sentiment) will trump local factors in supporting the ZAR in the weeks ahead," says Kowshik.