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Rand Selling Extends as 'Zuma Effect' Continues to Drive ZAR Markets

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The South African Rand is seen extending losses into the mid-week session as the news South African President Jacob Zuma narrowly survived a vote of no-confidence on Tuesday.  

The Rand weakened versus the Pound reaching a low of 17.5329 after the August 8 vote by the SA parliament.

The fall in the local currency due to Zuma's survival appears to represent an established pattern in which Zuma has a 'negative' impact on the Rand.

The same reaction can be seen in May after the President survived an attempt to unseat him from members of his own party, the ANC.

Tuesday's vote of no-confidence was brought forward by the opposition party based on Zuma's decision to remove Pravin Gordhan from the position of Finance Minister, despite being considered a 'safe pair of hands'.

It is thought Zuma sacked Gordhan so as to replace him with a Zuma loyalist (Gigaba) more sympathetic to a radical social policy agenda.

The President only narrowly won the vote of no-confidence with 177 'for' the motion versus 198 'against'.

The revelation that almost 30 of his own party joined the opposition to vote against him, will come as a blow to Zuma and may explain why gains in the Rand were relatively subdued after the vote.

From a technical perspective the vote reinforces the upside bias in the chart of GBP/ZAR.

In our week ahead analysis we noted the pair had broken clearly above a multi-month, major trendline in a very bullish move.

Following the initial break the pair pulled back in what is called a 'throwback' move back to the trendline, however, it once again started to moving higher as expected, following the news of Zuma's victory.

The breakout above the trendline is now apparently established, and this paves the way for more substantial gains, although ideally we would like to see a break above the 17.6517 highs as confirmation, with an initial target at 18.0000.

This target is calculated by using the technical method of taking the length of the move prior to the trendline and extrapolating it higher after the break to find the expected 'reach' of the followthrough.

GBPZARAug09

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