South Africa has 11 official languages, so there are plenty of ways to characterize the recent moves with the country’s currency. However you say it, though, things look bad for the rand — at least on the surface.
Last week was ZAR’s worst since 2015, with the rand weakening several percent against the dollar in the same month that it hit its best level versus the greenback in 20 months. All of this in the wake of President Jacob Zuma’s decision to fire his highly-respected finance minister, Pravin Gordhan. The ruling African National Congress is divided. Demonstrations are planned all week, culminating in a large protest in Johannesburg on Friday. And the speaker of South Africa’s parliament is considering an opposition request to hold a no-confidence vote on Zuma. Sure, it’s a real mess, but what does it mean for the rand?
“I would say, potentially, there could be some more weakening in the rand in the short term,” said Saktiandi Supaat, Global FX Strategy at Maybank. “Maybe another 5, 10, 20 percent potentially. It could actually move further than that if developments start to worsen.”
The political upheaval in South Africa is getting in the way of a strong recovery for the rand. It hit a high against the dollar in 2011, but then slowly started falling, hitting record lows at the end of 2015 and beginning of 2016 as commodity price weakness and market turbulence in China weighed. But investors shouldn’t abandon the rand, according to Jim Rickards, co-founder and chief global strategist at Meraglim.
