Rand heads towards R15/$ as pressure on Nhlanhla Nene mounts
TreasuryOne’s Wichard Cilliers says that with medium-term budget speech around the corner, the timing is not ideal, ‘we need stability to sort out the ailing fiscus’
The rand headed towards R15/$ for the first time in three weeks on Monday as pressure mounted on finance minister Nhlanhla Nene to quit after admitting to meeting the controversial Gupta family.
Nene was giving testimony at the commission of inquiry into state capture last week.
Business Day reported on Monday that Nene had asked President Cyril Ramaphosa to relieve him of his duties following the public outcry after his Zondo commission testimony.
“With medium-term budget speech just around the corner, the timing is not ideal. We need stability in order to sort out the ailing fiscus,” said Wichard Cilliers, head of dealing and director at TreasuryOne.
“The ANC is very much still reeling from the maladministration caused by our previous president. The ANC has still got plenty of work ahead of them.”
The rand and local bonds also bore the brunt of a strong dollar, which stood tall against virtually every other currency.
Upbeat US economic data is fuelling the expectation that the US Federal Reserve will keep raising interest rates, the effects of which tend to draw capital flows away from emerging markets.
Foreigners were net sellers of local bonds to the value of almost R5bn over the past week, contributing to the sharp drop in the value of the rand.
Non-residents hold the biggest share of the local debt at about 40%, leaving SA exposed when sentiment sours towards emerging markets, which is treated an asset class.
While headline US nonfarm payrolls data disappointed on Friday, the wages growth met expectations, fuelling the expectation that the US will continue on its hiking cycle.
“Friday night’s US payrolls report was a minor disappointment but in no way a game changer,” said Michael Every, analyst at Rabobank International in a note.
“Headline jobs growth was significantly weaker than expected due to weather-related disruptions at 134,000 versus [a] 185,000 consensus, but average earnings were in line at 2.8% year on year, while the unemployment rate … dropped to a new cyclical low of 3.7%, the best reading for 37 years.”
A weaker rand comes at the time when international oil prices are elevated, raising the prospect of much higher inflation.
The weaker local currency also pushes up the cost of imports, such as fuel, although it benefits the tourism sector and exporters.
At 8.27am, the rand was at R14.9078 to the dollar from R14.7975, at R17.1401 to the euro from R17.0505 and at R19.4860 to the pound from R19.4222. The euro was at $1.1497 from $1.1523.