With Cabinet Risk Out the Way, Rand Now Free to Follow Peers
Rand's Relief From South African Cabinet Risk Proves Short Lived
(Bloomberg) -- Now that South Africa’s cabinet has been announced, the rand may join its emerging-market peers in being whipsawed by a trade war that has subdued markets worldwide.
The currency advanced a second day against the dollar, a sign that investors are relieved over President Cyril Ramaphosa’s cabinet appointments. Public Enterprises Minister Pravin Gordhan and Finance Minister Tito Mboweni retained their posts in a slimmed-down executive as Ramaphosa took a step toward fighting graft and putting Africa’s most industrialized economy on a growth path.
“This is, fundamentally, a market-friendly outcome,” Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank Plc in London, said in a note to clients. “Should this momentum and seemingly new-found confidence be built on with the pursuit of further structural reform, then markets would be correct to react positively.”
Global concerns, however, that may cap further gains.
Trade talks between the U.S. and China aren’t showing signs of progress, and it appears a new front may be opening between President Donald Trump’s administration and Europe. The dollar has risen four straight days against a basket of currencies to the highest level since December on a closing basis.
“The general risk environment is still subdued,” said Nema Ramkhelawan-Bhana, an analyst at FirstRand Bank Ltd., in a note to clients. “For as long as high-frequency economic data continues to disappoint and U.S.-Sino trade tensions escalate, markets will favor safe-haven assets, leaving emerging markets to consolidate gains where possible. That’s of little comfort to the rand market, with the bias of risk still to the upside.”
The rand advanced 0.4% as of 11:37 a.m. in Johannesburg to 14.6009 per dollar. The FTSE/JSE Africa All Shares Index added 1.1%. The nation’s stocks saw net foreign purchases of 2.5 billion rand ($172 million) yesterday, the most since September, a day after they suffered their biggest net outflows on record.
To contact the reporter on this story: Colleen Goko in Johannesburg at cgoko2@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Robert Brand, Srinivasan Sivabalan
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