South African Rand Becomes World’s Most Political Currency – Bloomberg

The South African Rand (ZAR) has taken over, from Mexico’s Peso as the world’s most political currency, according to Bloomberg.

Now that the American election campaign has finished, the Rand is the currency most likely to have “the biggest politically driven price swings”.

Bloomberg says the Rand is expected to be volatile over the following three months as focus shifts to the battle between South Africa’s President, Jacob Zuma, and its Finance Minister, Pravin Gordhan, for control over the country’s purse strings.

As has been seen in the past three months, the Rand has strengthened whenever Zuma’s position has weakened, and weakened whenever Gordhan’s position has been most vulnerable (under threat from the Hawks, for instance).

Bloomberg says: “The volatility is significant because it’s making the rand a tough trade and rating companies preparing to review the country’s creditworthiness have cited political uncertainty as a major risk.”

Credit rating agencies are watching South Africa closely to decide whether to downgrade SA to junk status. Rating agency Moody’s will arrive in South Africa next week to review the country’s credit rating. Deputy Finance Minister Mcebisi Jonas said Tuesday: “The first and important task of this collective leadership is to unite to preserve our sovereign credit rating. We have no choice but to remain optimistic.”

Investors tend to believe that Zuma’s exit would enable Gordhan to get the country’s debt under control and avoid junk status… and therefore the Rand strengthens whenever it appears Zuma may step down or be recalled. (Africa economist Peter Attard Montalto cautions that this overplays Zuma’s role and over estimates reforms that will occur in SA after he leaves.)

South Africans – and the world – are waiting to see if ANC MPs will impeach their leader. A Motion for No Confidence in Zuma has been brought by the Democratic Alliance (DA) and will be debated on Thursday in Parliament in SA.

Last night former President Thabo Mbeki delivered a speech at a business awards event that brought hope to South Africans, saying: “We must act now and do the right thing.”

Gordhan was named Business Leader of the Year at the event. Citizens have called on Gordhan to do the “right thing” – after South Africans supported Gordhan through his Hawks summons – and vote on Thursday in support of the motion to have Zuma recalled.

According to experts, Trump’s victory Wednesday has hurt the high-yielding Rand… but the weakness is likely to be limited.

Read Bloomberg’s full article here.