The rand broke below R18 to the dollar for the first time since August as the inauguration of president-elect Cyril Ramaphosa and the prospect of a new “market-friendly” government lifted sentiment.
Market participants will focus on Ramaphosa being sworn in as president later in the day while awaiting the appointment of government officials.
Ramaphosa was elected president on Friday in the National Assembly with the help of minority parties, including the DA, Patriotic Alliance (PA), IFP and GOOD, that make up the government of national unity (GNU).
US investment banker JPMorgan on Tuesday upgraded SA’s outlook from underweight to overweight, stating “the tie-up between the five parties in the GNU could bring large offshore inflows into SA assets in the near term”.
While Ramaphosa might announce his cabinet only at a later date, speculation about who will take the political leadership of which ministries has already begun.
“The inauguration of President Ramaphosa followed by the announcement of his cabinet takes centre stage. Investors will keep a close eye on the size of the cabinet, as well as the selected ministers for each function of government,” said Citadel Global director Bianca Botes.
At 9.50am, the rand had strengthened 0.58% to R17.9339/$, 0.55% to R19.2652/€ and 0.31% to R22.8432/£. The euro was little changed at $1.0737.
“The presidential inauguration later today should see the rand trapped in ranges of R17.90/$-R18.20/$ ... for now,” said RMB head of forex execution Matete Thulare.
Analysts are cautiously optimistic that the current momentum might be sustainable.
“There was too much uncertainty going into the elections, and markets don’t like uncertainty. What we are currently seeing is the pricing-out of risks. This helps with a positive outlook,” said Sanlam’s head of fixed-income investment strategy, James Turp.
“With Ramaphosa and the incoming government, the very least we can still get is the continuation of the current fiscal trajectory and continuing fiscal discipline.”
Turp’s sentiment was echoed by Shaun Murison, senior market analyst at IG, who said that “the worst has been avoided and we could still see further gains in the rand and SA Inc”, adding that the rand could firm to R17.55/$ in the near term.
The moves in the rand, if sustained, could contribute to the positive mood around inflation.
“We are expecting two interest rate cuts by the Reserve Bank before year-end, with the current rand moves supporting that,” said Murison.
Globally, investors will be watching comments from various US Federal Reserve officials. Markets are looking for direction as to the Fed’s thinking on interest rates.
Meanwhile, the JSE’s all share index broke through 81,000 points and by 10.30am was up 1.84% at 81,219.12. The top 40 added 2%.
At the same time in Europe, the FTSE 100 had lost 0.24%, France’s CAC 0.22% and Germany’s DAX 0.16%.
Earlier in Asia, the Shanghai Composite was down 0.4% and Japan’s Nikkei 0.16%, while Hong Kong’s Hang Seng gained 0.23%.
In the commodities market, gold gained 0.23% to $2,333.97/oz and platinum 0.76% to $985.60/oz. Brent crude was 0.3% weaker at $85.07 a barrel.
With Thando Maeko
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