The rand pared gains on Friday as volatility remained amid uncertainty around the government of national unity (GNU).
The local currency reverses most of the previous session’s losses, when it fell 1.5% to trade above R18.50/$ for the first time in three weeks.
Investors are concerned about the direction of the GNU as the ANC and DA fight over cabinet positions. The DA could walk away from talks after the ANC reneged on positions it initially agreed on.
The DA was offered the trade, industry, and competition ministry, a crucial portfolio aligned with the ANC's transformation agenda. However, President Cyril Ramaphosa has reportedly rescinded this offer, instead proposing alternative ministries such as tourism, public works, agriculture, and transport.
This development has placed the DA in a difficult position, and with no resolution yet, analysts predict ongoing rand volatility amid the prolonged uncertainty over how the new cabinet will look.
“The ongoing uncertainty around the appointment of key positions in the cabinet has weakened the rand recently, along with some difficulties in this regard between the two largest political parties in SA,” said Investec chief economist Annabel Bishop.
“Market concerns over these teething problems on forming the working areas of government have underpinned the domestic currency’s weakness this week.”
Globally, sentiment improved after May’s personal consumption expenditure (PCE), the US Federal Reserve’s preferred inflation gauge, was in line with market expectations. The May data showed PCE slowed to its lowest annual rate in more than three years.
The Fed focuses on the PCE inflation reading as opposed to the more widely followed consumer price index (CPI) as PCE is a broader inflation measure and accounts for changes in consumer behaviour, such as substituting their purchases when prices rise.
At 5.35pm, the rand had strengthened 1.21% to R18.2413/$, 1.09% to R19.5441/€ and 1.43% to R23.0047/£. It is about 3% firmer against the dollar so far in June, its best month since December.
The euro was little changed at $1.0714.
“For investor confidence to improve, SA needs to see the formation of a pro-economic growth cabinet, which has the capability to deliver on turning around the ongoing freight crisis in the country as well as improving other factors affecting production,” said Bishop.
“The rand’s direction will also be determined by global events, particularly the US markets, however, its performance in the week ahead will probably depend heavily on the domestic political environment.”
The JSE all share gained 0.93% to 79,707 points on Friday and the top 40 0.96%.
At 6pm, the Dow Jones industrial average was 0.17% firmer at 39,232 points, while markets in Europe were mixed.
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