Rand plunges to one-month low on fears of ANC losing electoral majority

Days before the elections, the rand was trading at R18.34 to the greenback. Photo: Henk Kruger Independent Newspapers

Days before the elections, the rand was trading at R18.34 to the greenback. Photo: Henk Kruger Independent Newspapers

Published May 31, 2024


Nicola Mawson

The rand plunged more than 1% to temporarily breach the R18.70 mark against the US dollar yesterday, its lowest since early May, after early election results indicated that South Africa’s ruling party, the ANC, might lose its parliamentary majority for the first time in 30 years of democracy.

Investors were concerned that the ANC’s loss of majority electoral support could result in alliances with populist parties that have threatened to nationalise assets ranging from land to banks.

Preliminary numbers showed that the ANC’s support was hovering around 43.4% after more than 20% of votes were counted, a far cry compared with its final vote count of 57.5% in the 2019 national election.

Days before the elections, the rand was trading at R18.34 to the greenback.

Old Mutual Group chief economist Johann Els said the domestic currency was not nearly back to its recent weakness, having hit R19.29 on April 19.

Els said the recent drop in the rand was partially due to market concerns about election results, although much of the vote, especially rural areas, had yet to be counted.

“The market is jittery,” Els said.

However, Els said the ANC will still hold onto a majority, even if it needs to join forces with a smaller party that won’t be able to influence policy, which will reassure markets.

Els said the local currency could return to the R14 to R15 against the dollar range on a better economic outlook for the country, including less load shedding.

“That’s the type of recovery I think we can look forward to. When there are extremes, the rand improves sharply. I wouldn’t read too much into the current value.”

Some analysts also said there was no reason to worry about the rand’s movement thus far, but pointed out that markets hate uncertainty.

Even after giving back just over 2% of its gains on Tuesday and Wednesday, TreasuryONE head of market risk Wichard Cilliers yesterday said the rand had been one of the best-performing so far this year.

“The market will continue to keep an eye on the election results, as it is clearer now that a coalition government needs to be formed,” Cilliers said.

“Who the ANC chooses to create it with could cause some volatility for the rand, as a coalition partner like the EFF or MK could cause some weakness as it will be seen as market unfriendly.”

According to projections from the CSIR, the ANC was currently on track to win 42% of the votes cast in Wednesday’s national election.

Andrew Bahlmann, the CEO of corporate and advisory at Deal Leaders International, also said the ANC might have to consider forming an alliance with one of its major rivals to maintain its hold on power.

“Uncertainty surrounding political events, economic policies, or global market conditions can contribute to currency volatility. When investors perceive uncertainty, they tend to seek safer assets, which can lead to a weakening currency,” Bahlmann said.

Markets also expected the rand to be affected by the US inflation data, as well as the US heading towards rate cuts in about the middle of the year, economic indicators which might see the dollar drift softer and boosting the rand.

However, Casey Sprake, an investment analyst at Anchor Capital, was more cautious on US rates.

Sprake said global risk aversion increased on Wednesday, impacting both risk assets and high-beta currencies as the markets were starting to price in the possibility of future rate hikes in the US.

“It is important to bear in mind that it is not just local electoral and monetary policy factors driving the direction of the rand but also important international developments, particularly in the US,” Sprake said.