In December, the rand was the best performer among a basket of 24 emerging market currencies, having gained 10.9%. Much of the appreciation occurred after Cyril Ramaphosa was elected ANC President at the 16th – 20th December ANC elective conference. Market sentiment has likely been influenced by perceptions that a Ramaphosa led ANC would align economic policy more to the National Development Plan and be more business friendly. The rand has retained this strengthening bias at the start of 2018 but the scope for volatility during Q1.18 remains ahead of the State of the Nation Address and 2018 Budget, both in February.

Moreover, in November 2017 Moody’s placed SA’s sovereign credit rating on downgrade review. Moody’s noted that “(t)he review period may not conclude until the size and the composition of the 2018 budget is known next February. This will also allow Moody's to assess the policy implications of political developments during the review period and the likelihood of pressures on South Africa's key policymaking institutions persisting.” SA’s credit rating with Moody’s is presently one notch above non-investment grade and a downgrade would trigger the exclusion of SA bonds from the World Government Bond Index with the forced selling of local bonds estimated at up to R200bn.

In the meantime, also noteworthy for the rand has been the substantial lift in global commodity prices. The Economist Metals Index rose 27.3% y/y in December (see figure 5). The rise has been linked to indications of a continued strengthening in global economic activity and global trade momentum.

In the week ahead, the rand is expected to trade in a range of R11.85/USD – R12.85/USD, R14.40/EUR - R15.40/EUR and R16.20/GBP - R17.20/GBP.