Update: Rand Exchange Rates Reverse Gains, GBP/ZAR Movement Forecast on Carney’s Speech
After rallying in reaction to Cyril Ramaphosa’s election victory, South African Rand (ZAR) exchange rates experienced a reversal.
According to emerging-market strategist Guillaume Tresca, ‘The market has got ahead of itself as the victory of Ramaphosa does not spell the end of South Africa’s issues. It is facing a turbulent period in the near future, which will make its assets vulnerable. Moreover, the medium- to long-term outlook is still not positive for the Rand.’
Both the GBP/ZAR and USD/ZAR exchange rates have risen this morning, but the Pound Sterling to South African Rand (ZAR) exchange rate could give up gains later today if Bank of England (BoE) Governor Mark Carney adopts a cautious tone in his speech to Parliament.
However, the US Dollar is likely to push higher against the Rand if President Trump’s tax reforms are passed and sent to Trump to sign in to law.
Brexit and ANC Speculation Triggers Pound Sterling to South African Rand (GBP/ZAR) Volatility
After fluctuating last week in reaction to the latest UK data and Brexit developments, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate surged on the news that Cyril Ramaphosa will be the next leader of the African National Congress (ANC).
South African Rand (ZAR) Exchange Rates Surge as Ramaphosa Elected Leader of ANC
The South African Rand (ZAR) jumped on Monday as, after months of back and forth, deputy president Cyril Ramaphosa was elected the new leader of the ruling African National Congress (ANC).
This follows a bitter battle between Ramaphosa and his rival Nkosazana Dlamini-Zuma, ex-wife of the current president and former leader of the ANC Jacob Zuma.
Markets welcomed the Ramaphosa win as he is seen as a pro-business candidate who seeks to foot out the systemic corruption that plagues the country, compared to Dlamini-Zuma who sought to continue her ex-husband’s populist policies.
It’s hoped that Ramaphosa’s victory will bring significant structural reforms and ensure the independence of the South Africa Reserve Bank (SARB), which Zuma has sought to exert pressure on in recent months to help support his spending plans.
However, Ramaphosa will still have his work cut out from him if he is to persuade ratings agencies to bump the nation’s credit rate up from ‘junk’ status and revive confidence in the South African economy.
Pound Sterling (GBP) Exchange Rates Weakened by Barnier Comments
At the same time, the Pound is struggling to rally today as the EU’s Brexit negotiator, Michel Barnier, delivered another blow to Theresa May’s Brexit plans.
In speaking to the Guardian today, Barnier quashed any hopes of a ‘bespoke and ambitious’ trade deal with the EU, specifically shooting down the possibility of a special deal for the city of London.
Barnier confirmed that any decision to leave the single market would see London lose its financial passport, likely leading to the city losing its status as the financial centre of Europe.
‘There is no place [for financial services]. There is not a single trade agreement that is open to financial services. It doesn’t exist. In leaving the single market, they lose the financial services passport.’
GBP ZAR Exchange Rate Forecast: Political Developments to Keep Rand Volatile
Looking ahead, the GBP ZAR exchange rate may slip again on Wednesday as the Confederation of British Industry (CBI) publishes its monthly distributive trade index.
Economists forecast that the index will have slipped from 26 to 20 in December as retail sales fall back after a bumper month in November thanks to the back Friday sales.
Meanwhile, a lull in South African economic data in the run up to the holiday period is likely to leave the Rand driven by political developments, with a possible split in the ANC following Ramaphosa’s victory unlikely to welcomed by investors.
Data Affecting This Week’s GBP/ZAR Forecast
20th December 11:00 UK CBI Distributive Trades (Dec)
21st December 09:30 UK Public Sector Borrowing (Nov)
22nd December 09:30 UK GDP Q3 Final
22nd December 09:30 UK Business Investment Q3 Final