Picture: REUTERS
Picture: REUTERS

The rand was little changed against major global currencies on Monday morning, under pressure from both global and local events, including uncertainty regarding the future of President Cyril Ramaphosa.

Ramaphosa has said he will take urgent legal action to challenge the public protector’s findings of dishonesty and money laundering against him, related to his 2017 ANC electoral campaign.

Analysts have pointed to the possibility that Ramaphosa’s pro-growth and anti-corruption efforts may be hamstrung by the political battle, although international factors, including the prospect of US Federal Reserve interest rate cuts, remain a major focus for the rand.

The ratcheting up of local political tension had prompted some selling of local government bonds, and is likely to continue to weigh on the rand, said Nedbank Corporate and Investment Banking strategist Reezwana Sumad in a note. “The outcome of this is likely to have far-reaching effects and significant consequences,” she said.

At 9.45am the rand was 0.18% weaker at R13.9527/$, having earlier reached R13.9754. It was 0.19% softer at R15.6542/€, while remaining flat at R17.4208/£. The euro was flat at $1.1219.

Global focus is on the escalating tension in the Middle East, where Iran has seized a UK oil tanker. Markets are also pricing out the chances of a 50 basis point interest rate cut from the US Federal Reserve, following commentary by a number of Fed officials.

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On Monday morning, the chances of a 50 basis point cut was at 18.5%, from 25.5% a week ago.

Although the rand was benefiting from the expectation of loose monetary policy, the past four Fed-rate cut cycles had led to a significant weakening in the rand, said Rand Merchant Bank global markets strategist John Cairns in a video note.

After initial strength, the rand could in fact give up these gains and depreciate, as the reason for the Fed cuts was weaker US growth, which translated into, among other things, pressure on commodity prices, said Cairns.

Should the Fed cut rates in July, Rand Merchant Bank’s model predicted a 47% chance of a rand “blow out” over the next year — defined as a 30% or more movement in the USD/ZAR.

Focus on Tuesday will shift to parliament, where further details on Eskom’s bailout may be made available.

The possible trading range for the rand on Monday was R18.85/$-R14.15/$, Sumad said.