21 Aug 2018

Rand note: Rand slumps to R12.18/USD on FOMC inspired risk off & USD strength, and SA politics

Annabel Bishop

Chief Economist

  • The recalibration of interest rate expectations in the US has had a significant impact on international currency markets. Fears of higher (and faster) than expected US interest rate hikes have stimulated risk-off, and the dollar as a safe haven currency has risen as treasuries rallied with a sell-off in equity markets.
  • The rand weakened to R12.18/USD, R15.06/EUR and R16.99/GBP last night from R11.82/USD, R14.71/EUR and R16.73/GBP before last week’s FOMC meeting, while the JSE has lost 2 809 points, with market expectations that it could decline substantially further today.
  • SA has seen foreigners sell R5.8bn in SA government bonds net of purchases since the recent FOMC meeting, after R1.0bn in purchases immediately prior to it. The rand remains at risk of volatility from both global markets and domestic developments.
  • In South Africa, financial markets have also been afflicted by the politics of the day, as President Zuma reportedly told ANC key officials over the weekend he would not step down. He is currently set to deliver Thursday’s (8th February) SONA (State of the Nation Address).
  • A vote of no confidence in President Zuma is tabled for the 22nd February, a day after the 2018 National Budget, while some in opposition parties have requested the vote take place before the SONA. It is reported that ANC officials continue to meet to discuss the pressure for the President’s removal from office.
  • South Africa’s politics remain noisy, with the rand weakening over the weekend to R12.13/USD, R15.00/EUR and R16.94/GBP on Monday from Friday’s R11.84/USD, R14.81/EUR and R16.89/GBP. Indications are that it could weaken towards R12.35/USD this month on further increases in political uncertainty - with the SONA, Budget and Moody’s credit review all upcoming as well.
  • The R186 has also lost ground on rising political uncertainty and resultant rand weakness, at 8.47% from 8.38% yesterday and 8.09% last week, while higher US treasuries have also had an impact as the USGB10 reached 2.85% from 2.66% at the start of last week.
  • This morning the rand has pulled back somewhat from last night’s highs, at R12.14/USD, R15.01/EUR and R16.64/GBP with markets perceiving the USD recent strength as somewhat overdone, while longer term good growth prospects in Europe, and higher ECB interest rates are expected to see the USD lose ground.

SA political recap


  • In SA a President can be removed from office through recall, impeachment or a no confidence motion passed against him (her). The Centre for Constitutional Rights (CCR) explains further that on recall (and resignation) of a President the Deputy President will occupy the office and completes the term of the removed President, but is still be allowed to fill two of his (her) own terms as President afterwards. 
  • On the other hand, a passed motion of no confidence “remove(s) not just the President from office, but also, the Deputy President, the entire Cabinet, as well as Deputy Ministers. Thereafter, the Speaker of Parliament assumes the President’s office in an acting capacity until the members of the National Assembly elect one of their own to occupy the office of the President.” (CCR)
  • The Deputy President would remain an ordinary Member of Parliament, and would then need to be elected President by the other members of parliament. However, any member of parliament could be elected President of SA, and then be eligible for re-election in 2019 again as President of SA.
  • Impeachment (removal of the President via the constitution) proves a difficult process as it requires a two thirds majority in the National Assembly, with final regulations outstanding, with the CCR clarifying that a President can only be impeached when there is a serious violation of the constitution, the law, or when serious misconduct or inability to perform functions has been established.  
  • It adds that as under a recall, the impeachment of the President would see the Deputy President occupy the office of President and complete the term of the removed president, but still be allowed to fill two of his (her) own terms as President afterwards.  
  • With the EFF pushing for the no confidence motion, the ANC apparently still discussing recall and two perceived centres of power in the country (President of the leading political party vs President of the Country) political uncertainty has risen again in South Africa.