JOHANNESBURG – South Africa’s rand is expected to weaken by over 5 percent against the dollar in the run-up to an ANC party conference that will pick a successor to beleaguered President Jacob Zuma, a Reuters poll of currency analysts found.
However, the poll of almost 40 strategists suggested the rand would trade at 13.80 per dollar in November – firmer than last month’s median of 13.99, just one month before the crucial African National Congress conference.
The rand remains far better off now than what forecasters suggested this time last year. The most bearish analysts punted 19.42/$ then, but it is less than 100 cents from the 12/$ which some consider as fair value.
Debt downgrades, a change of guard at the Treasury and a poor economic outlook has not stopped investors looking for better returns in South Africa, indicating the rand will remain relatively resilient this year amid tense local politics.
“Part of the strength in the rand can be explained by the more positive sentiment towards emerging markets,” said Emile du Plessis at Finometrica.
He added that the ongoing policy challenges faced by protectionist U.S. President Donald Trump, Britain with its decision to leave the European Union, as well as the recovery in commodity prices, would support the rand.
The dollar is likely to rise only slightly over the coming year on waning expectations for tax cuts and Federal Reserve rate rises, according to foreign exchange forecasters who said risks are skewed more to the downside.
However, credit agencies Standard and Poor’s and Fitch have already trimmed South Africa to “junk status”, and economists say there is a risk of more downgrades in the medium term.
In the meantime, traders will be assessing the mood in the ANC and its likely future leader.
After a strong performance for the rand last week on speculation the ANC would discuss the removal of Zuma at the weekend, Rand Merchant Bank strategist John Cairns wrote on Monday that although the president survived the ANC gathering, “was this from a position of weakness or strength?”
Zuma is facing mounting pressure against him from within the ANC, opposition parties and parts of South African society after he fired respected finance minister Pravin Gordhan in March, triggering credit downgrades.
Last year, Brazil’s Senate ousted one of Zuma’s fellow emerging market presidents, Dilma Rousseff, ending an impeachment process that generated much speculation in currency markets.
Cairns added that with Zuma having survived the weekend ANC meeting, the key questions now are whether any no-confidence motion in parliament has scope to succeed and whether lessons can be drawn on which way the December conference will swing.
The ANC has led South Africa since the 1994 end of apartheid and its leadership conference is likely to produce the face of its 2019 national election campaign.