The Rand has faded on news South African President Jacob Zuma survived the most robust challenge to his leadership in years launched by his associates in the ruling African National Congress.
The Rand has shed weight against the Pound, US Dollar and Euro following a day of high drama in which members of the ruling African National Congress (ANC) openly called for his resignation from the Presidency.
The move by members of the ANC's National Executive Committee (NEC) immediately brought back memories of the recall of former President Thabo Mbeki who was replaced by the incumbent Zuma before the expiry of his second term.
Markets anticipating a potential redux bought the Rand which tore higher through foreign exchange markets.
The scandal-hit leader has been a weight on the currency's value over recent years and news that a good portion of the ANC's leadership want a new leader was an all-out positive.
“It seems that Zuma’s strong position within the governing African National Congress has weakened amid numerous corruption allegations," says Rabobank’s Piotr Matys. “This is a positive signal from the perspective of local assets."
If Zuma were forced to leave, Matys suggests reformists represented by the well-respected Finance Minister Gordhan will be able to fully implement structural reforms, which are absolutely crucial for South Africa to avoid being downgraded by rating agencies.
A weekend meeting of the African National Congress (ANC) national executive committee was extended into Monday after a rebellion led by senior government figures.
It is believed Tourism Minister Derek Hanekom, Health Minister Aaron Motsoaledi and Public Works Minister Thulas Nxesi all called on the president to step down, News24.com reported, citing party sources.
Sources in the NEC said on Tuesday that the motion to remove Zuma was rejected and a “settlement” was reached.
We await a debrief on the meeting later today and would be wary of a positive surprise, perhaps in the form of a transition deal which could boost the Rand once more.
"This afternoon’s ANC press conference may provide some more details but the hearsay this morning is that the ANC Top 6 will consider the matter of whether the President should go or not and report back to the next NEC. The NEC meetings, therefore, will take on a lot of importance for the market," says John Cairns at RMB in Sandton, Johannesburg.
From a currency perspective it is worth pointing out that ZAR is holding onto much of the advance, regardless of the failed reformist move.
Analyst Petr Krpata at ING in London expects the Rand to hold a portion of its recent gains regardless of the ongoing political saga:
"Given the oversold ZAR levels (following the UST sell-off since the US election) and the likely stability in UST yields during the remainder of week, USD/ZAR should not imminently head back above the 14.10 level - the level prior to yesterday’s ZAR rally."
Rating’s Agencies Maintain SA Rating
It is credit rating season and South Africa has already had several agencies publish their assessments which have played into recent ZAR bullishness.
On Friday Moody’s kept ratings unchanged at two notches above investment grade (with negative outlook) but this by default rather than design as such as they opted to “give South Africa more time”.
Fitch left the rating the same but cut the outlook from stable to negative; S&P publish their ratings on December 2.
Technical Outlook for Pound to Rand Exchange Rate
The technical outlook favours more downside for the Pound v Rand pair in the short-term due to the sell-off in the pair following the peak of the 10/11 of November.
Most recently the exchange rate has broken below the lower boundary of the consolidation range it has been forming, and despite finding support at the 200-4hr moving average looks poised for more loses.
A clear break below the 200-4hr, confirmed by a downside break below 17.1750 would see a continuation extending down to 17.0275 where the 0.618 Fibonacci retracement is, which is a common support level where prices often stall.
The MACD momentum indicator has pushed below the zero-line, indicating the probability that the pair is in a downtrend.
Formidable resistance lies between 17.30-40 (indicated by the box with red hatching) which the exchnage rate will struggle to break back above in the event of a recovery.