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Recalcitrant Zuma shakes traders’ conviction on rand’s direction

Risk reversals climb as president spurns ANC’s order to resign.

The rand is still trading as if South Africa’s President Jacob Zuma is as good as gone. But the options market suggests some investors are starting to lose conviction.

The currency extended its advance on Tuesday, even after Zuma refused the ruling African National Congress’ order to step down. The rand’s advance since December 18, when market favourite Cyril Ramaphosa was elected leader of the ruling African National Congress, is the strongest out of 16 major peers.

But the premium of contracts to sell the rand over those to buy it in the next week — known as the 25-Delta risk reversal — climbed for a fifth straight day, reaching a level last seen before Ramaphosa clinched the ANC’s leadership battle.

Problem is, the party that put Zuma in office has no authority to fire him as president. It could instruct its lawmakers in parliament to vote in favour of a motion of no confidence which, if carried, would remove Zuma and his cabinet. Or it could start impeachment proceedings, a process that may take much longer.

Either way, the government is running out of time to signal a new beginning for Africa’s most-industrialised economy: the crucial budget presentation is scheduled for February 21, and rating companies are waiting to pounce should it fail to deliver on Ramaphosa’s promises of fiscal responsibility and growth-stimulating measures.

And the longer it takes, the higher the risk of a reversal in the rand’s fortunes. The currency could weaken as much as 4% to 12.50 per dollar, from around 11.90 on Tuesday, as political instability increases, according to Saktiandi Supaat, the Singapore-based head of foreign-exchange at Malayan Banking BHD.

“This may get a bit messier,” warned Simon Quijano-Evans, a London-based emerging-markets strategist at Legal & General Investment Management.

The rand gained 0.2% to 11.90 per dollar by 11:06 am in Johannesburg.

Rand performance

© 2018 Bloomberg

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“And the longer it takes, the higher the risk of a reversal in the rand’s fortunes.”

Any pun intended Colleen, in the context of an article about the Risk Reversal?

Well it seems after all that noises the ANC NEC decided not to decide anything. They say Zuma should go if and when he wants to, no deadline. If i was Zuma i wouldnt even think about their proposal.

End of comments.





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