South Africa's rand falls 1 percent on profit-taking after cabinet bounce

27 Feb, 2018

At 1230 GMT the rand was 0.67 weaker at 11.6325 per dollar, recovering slightly after hitting a session-low 11.67, with investor focus switching to the first US congressional testimony by new Federal Reserve Chairman Jerome Powell later in the session.

Some analysts attributed the rand's weakness to concerns over why Ramaphosa retained ministers who are Zuma allies.

The rand had rallied in the run-up to the reshuffle that saw Ramaphosa reappoint Nhlanhla Nene as finance minister, but failed to hold below 11.5100, a key technical level that could unlock further gains.

The reshuffle saw Ramaphosa add new faces and remove some ministers allied to Jacob Zuma, further fuelling investor hopes of economic reform and a clamp down on the corruption that Zuma was accused of. Zuma has denied any wrongdoing.

"The rand's treading a narrow range between 11.50 and 11.75 and the long term trend remains rand strengthening. It needs to take out the 11.40 level to gain further," said strategist at IG Markets Shaun Murison.

Nene said on Tuesday his predecessor's budget last week might not prevent further credit ratings downgrades, with Moody's due to make decision at the end of March.

Ramaphosa said he had not compromised by keeping Zuma allies in government departments, but some analysts disagreed.

"That the rand has fallen more than 10 cents could be a signal that there is also a domestic catalyst. People in the market are wondering why some people retained their cabinet posts," Murison said.

The rand slide was in-line with other emerging currencies as the greenback bounced back, while demand for risk currencies was also cooled by higher US Treasury yields and the growing prospect of interest rate hikes by the Federal Reserve.

Bonds were weaker, with the yield on the benchmark paper due in 2026 up 7 basis points at 8.08 percent.

Stocks rose, with the Top-40 index on the Johannesburg Stock Exchange up 0.4 percent at 52,073 points and the broader All-Share index up 0.3 percent at 59,041 points.

Banking shares, which are seen as a barometer of political and economic sentiment, out-performed the broader market, with the index, up 1.3 percent.

Africa's biggest retailer Shoprite's shares rose more than 3 percent after saying it would expand to Kenya.

 

Copyright Reuters, 2018

Read Comments