Weekly forex update 24/11/17

What we know

Following the gains of late last week, we were bracing for a bit of a pull-back at the start of the week.  One of the main reasons for the strength seemed to be market talk around the fact that Cyril Ramaphosa was performing way better than expected in regional ANC voting, to the extent that some thought his lead to be unassailable.  In the absence of any concrete news in this regard, and with the ratings agencies due to comment tomorrow, some ZAR selling seemed likely.  However, as the week moved on the ZAR continued to gain further.  The main factors cited by commentators were:

• Encouraging developments in Zimbabwe creating hope that our own tyrant may soon be cast asunder, together with some of his cronies
• Hope that the ratings agencies may see fit to give South Africa (yet another) stay of execution with regards to a potential downgrade, and
• The USD once again being on the back-foot.

Local economic data was as expected with inflation in-line and the MPC leaving the benchmark interest rate at 6.75%.

At the time of writing all of the above has left the ZAR only 0.7% off its best levels of the week and at the same levels seen a month ago, just after the medium-term budget speech.  Levels we believe are too strong.

What others are saying

21 Nov 2017
RMB Global Market Research daily report

“After our (ongoing) discussions with the analysts tallying the ANC branch nominations, we are fairly confident in saying that Deputy President Ramaphosa is leading the numbers. However, this does not mean that he will necessarily win in December.”

Eye Witness News
How viable is Cyril Ramaphosa’s Economic Policy? | Radio 702

Asset Management and Economic Strategist Dr Thabi Leoka says she is unsure of how to separate the deputy president’s new economic plans from the National Development Plan. Listen here

22 Nov 2017
Investec Morning Report
Near term direction on the ZAR will however only materialise post the ratings agency pronouncements later on Friday in which outcomes remain highly uncertain.

RMB Global Market Research daily report

“The resignation of Mugabe possibly opens the way for an economic revival in Zimbabwe — which was once a meaningful trade partner for South Africa. There is, however, a long road to tread and we are far from sure that the new authorities will necessarily follow a democratic and economic path that would boost South Africa. As such, do not expect a sustained rand rally on last night’s developments.”

23 Nov 2017
Investec Morning Report

“The house-view is that there is a more than even chance that SA is downgraded to junk by Moody’s on the foreign currency rating and possibly S&P’s local currency rating.  Whether Moody’s downgrades the local currency rating as well is less certain and may well be stalled until after the Dec elective conference and the Feb budget by virtue of Moody’s being more conservative.  It is therefore quite conceivable that SA gets downgraded on some measures but is not necessarily removed from WGBI which might well generate a relief rally.  This might also help explain resilience of the ZAR.”

 

Other Tidbits

22 November 2017

Mnangagwa to be sworn in on Friday
Zimbabwean Emmerson Mnangagwa will be sworn in as president on Friday, Harare’s speaker of parliament announced on Wednesday.

Zuma appoints Khehla Sithole as SA’s new top cop

23 November 2017

Sisulu, Mkhize, Dlamini-Zuma pull out of Daily Maverick event

What we think

What we think?  What we really, really think?

We think we’d rather be writing this piece after the Ratings Agencies’ decisions and the December ANC Conference!

We called it wrong this week as the ZAR broke through the lowest end of our possible range and has shown few signs of selling off since.  Sticking to our conviction, we have spent most of the week telling clients that purely from a risk-mitigation perspective and, given the potential for things to still potentially go horribly pear-shaped from here, it would be prudent to move at least a portion of their funds offshore before this afternoon.

We may be wrong again, but we believe that there is a lot more to be lost from being right by the time the dust has settled in December.  As such our range remains tilted towards larger downside with 13.50 – 15.00 possible between now and 31 December.

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Have a great weekend!