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Pound up on South African Rand as Attempt to Oust Zuma Fails

Zuma Rand exchange rate

The South African Rand is seen coming under pressure in the wake of news an attempt by the opposition to oust him from the helm of the country has failed.

A no-confidence motion on the President has failed to pass with 177 voting in favour against 198 who voted against the measure. There were 9 abstentions. 

The Rand had been bid higher on news that the motion would be voted for in secret with markets hoping that perhaps ANC legislators would vote against their leader.

However, the Rand has reversed many of these gains now that the motion has failed. The currency certainly hasn't crashed which suggests markets knew this was the likely outcome.

At the time of writing the Pound to South African Rand exchange rate is up 0.75% at 17.39, the Euro to Rand rate is up 0.70% at 15.72 and the US Dollar to Rand rate up 1.15% at 13.39.

Ahead of the vote we gave the following views from the analyst community.

Isaah Mhlanga at RMB:

“The market may not be prepared for a successful vote.

“We are not convinced that the opposition, the ANC and the market are adequately prepared for a successful vote, which would require 201 of the 400 MPs to vote in favour of the motion irrespective of how many abstain from voting.

“If the opposition parties are correct in saying they have more than 50 ANC MPs who have indicated their willingness to vote in favour of the motion, market reaction will be a swift rally.

“The rand and bond rally reflected that a wide margin of political risk premium had already been priced in.”

Petr Krpata at ING Bank:

“The ZAR rallied yesterday on the news that today’s ballot would be secret, making it slightly more likely that 50 of Zuma’s ANC MPs could defy their boss, join the 151 opposition MPs and secure the 201 votes required to win the vote.

“We see the Rand’s reaction to the vote as binary – USD/ZAR potentially testing 12.85/90 on a rejection of South Africa’s president since 2009 or alternatively rallying to 13.55/60 should the no-confidence vote fail. The balance of risks probably favours an insufficient number of ANC MPs defecting, the vote failing and the ZAR weakening.”

Hans Redeker, Morgan Stanley:

“Should Zuma be voted out, investors may view South Africa as the next Brazil and push the ZAR significantly higher in the short term.

“However, caution is warranted as there would be a period of uncertainty as South Africa goes through a political transition. Should President Zuma win the vote, ZAR will maintain its underperforming position, finding little protection from booming global trade and higher commodity prices.”
 
UBS:

“Zuma should survive the vote. This may be a tactical move by the ANC to demonstrate not only that there is a robust and transparent democracy in place, but that the ANC is unified as a party and that Zuma is able to withstand even a vote in secret.”

 

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