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South African Rand Caught in Brazilian Crossfire

Temer saga hits the value of the South African Rand

Headlines out of Brazil over the past 24 hours have sent emerging markets - including the South African Rand - into turmoil.

Brazilian President Michel Temer is accused of authorising a payment to secure the silence of former speaker Eduardo Cunha in the country’s corruption investigations.

Temer had been recorded encouraging the bribery of a key figure in the lava jato corruption scandal that has engulfed large sections of Brazil’s business and political leadership.

The president’s office denied he had done anything improper but investors are running scared.

The Brazilian Ibovespe shed over 10% and its currency — the real — lost 7% against the greenback, setting the tone for emerging-market currencies.

“The Rand weakened by as much as 2% against the dollar, reaching a high of 13.55 in mid-day trade from its opening level of 13.30. It closed the day at 13.41, which was still a weaker level. It opens today at 13.40, with an upside bias as the market awaits further news flow from both the US and Brazil political circles, especially given that today’s calendar is starved of any market-moving data releases,” says John Cairns at RMB in Johannesburg.

The analysts notes EUR/USD is trading sideways again this morning around 1.110, with potential to move USD/ZAR in both ways. EUR/ZAR opens at 14.87, which is lower than yesterday’s high of 15.05. The sterling is at 17.33, also lower after consolidating losses seen yesterday.

“We could see some further consolidation in these pairs as the Dollar strengthens,” says Cairns.

The O Globo newspaper has today posted an audiotape on its website with the alleged remarks Temer makes.

“From being one of the darlings of the EM investment world, Brazil yesterday turned into a pariah,” says Chris Turner at ING Bank N.V in London. “Investors will probably take further fright today and $/BRL could trade 3.50+ today.”

How much blow-back from the scandal reaches the Rand remains to be seen but those with an interest in ZAR are put on alert.


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