The rand rallied on Tuesday, strengthening to below R13.50 to the US dollar as the race for the ANC president enters the final stages.
Deputy President Cyril Ramaphosa is now firmly in the lead after winning backing from most ANC branches to succeed President Jacob Zuma as ruling party leader.
READ: Ramaphosa has edge, but leadership victory not guaranteed
RMB currency strategist Ilke van Zyl said in a morning note that the positive turn in local politics could buoy the rand further.
The local unit has clawed back more than a rand since it breached R14.50/$ just over two weeks ago on plans by President Jacob Zuma to push through free higher education.
By 09:10 the rand was trading 0.4% firmer at R13.46/$ from an overnight close of R13.52/$. The unit was still trading in the high R13.70s on Monday.
“Local politics are the main reason for the significant rally in the rand this morning as the race for ANC president enters the final stages. Kwazulu-Natal endorsed Dlamini-Zuma with 433 (69%) votes vs. 193 (31%) votes for Ramaphosa. But this was more than neutralised by Limpopo that crowned Ramaphosa with 391 votes (79%) vs. Dlamini-Zuma’s 104 (21%).
“Ramaphosa is now firmly in the lead and has the backing of five provinces with a total of 1 862 votes. Dlamini-Zuma has four provinces behind her and a total of 1,309 votes. Simplistically, this is a 59/41 percent split in favour of Ramaphosa,” she said.
Van Zyl however said it is important to remember that not all of the branches were allowed to vote and an accreditation of delegates will take place on the first day (the 16th) of the conference.
“Either way, this gap is very unlikely to be closed.”
South Africa’s GDP growth numbers are also due for release on Tuesday, with economists expecting an easing to 1.7% in quarterly growth from 2.5% recorded in the second quarter.
Van Zyl reckons markets are already pricing in low growth and the release should have minimal impact on the currency.
The rand surprised the market with a strong push to below R13/$ on Tuesday afternoon as the unit capitalised on a weaker dollar.
Earlier on Tuesday the rand continued its previous session’s slide to reach R13.12 to the greenback as the local unit faced more upside pressure from the North Korean missile launch.
By 16:47 the rand was trading at R12.99/$, 0.32% firmer than its previous close. It strengthened to R12.93/$ earlier in the session.
RMB currency analyst John Cairns said in his daily note to clients that the latest missile launch was North Korea’s most provocative ballistic test yet, as the missile flew over the northern Japanese island of Hokkaido, generating warnings for citizens to take cover.
“Given that a war between Japan/Korea/US and North Korea would be devastating — and generate R2.00+ big figure rise in USD/ZAR — one can understand the market’s nervousness.
“However, the problem with the catastrophe trade is that there is only a very small chance of a massive market event and a near certain chance that nothing will happen. Betting on the catastrophe therefore is almost always going to generate a loss, which is to say that, as with all the previous missile launches, expect risk aversion to die away rapidly, and for risk assets to recoup their losses,” Cairns said.
Commenting on the latest move, TreasuryOne told Fin24 there is no particular reason for the rand’s sudden strength.
“It surprised the market. The rand is capitalising on a weaker dollar and the North Korea missile scare has fallen into the background.”
TreasuryOne dealer Andre Botha earlier said North Korea’s missile launch early on Tuesday will only serve up more geopolitical tension, and more risk-off behaviour can filter into the market which can stop the rand from breaking through the R13-level against the US dollar.
Plastic five pound notes are about to be unveiled by the Bank of England which will be impossible to tear, can go through the wash and even survive having a glass of wine poured on them.
The polymer £5 note repels dirt and moisture and is designed to last for about five years, compared with between 18 months and two years for the cotton paper version which should save the Bank of England about £100-milliom over 10 years.
The design is being unveiled later this week while the notes themselves will not be released until September when about 44m of the notes will come into circulation, followed by plastic versions of other notes.
The new fiver, which will be 15% smaller than the current note, will feature Winston Churchill who replaces the 19th Century prison reformer Elizabeth Fry.
A plastic £10 note featuring author Jane Austen will be released next summer and a £20 note with a picture of the artist JMW Turner will be launched by 2020.
Victoria Cleland, 46, the Bank’s chief cashier, told the Sunday Times, the new notes were getting a good reaction from members of the public who had seen them.
She says: “They often says, ‘Wow, that’s really cool.’ You don’t often get ‘cool’ and ‘the Bank of England’ in the same sentence. They are more modern and I think they’re beautiful.”
But despite their resilience, the Bank is not encouraging anybody to give the new notes a spin.
Cleland says: “Yes, you can put them through washing machines but we’re not encouraging people to do that. We didn’t design them to go into washing machines: it is a fortunate by-product that they are more resilient [when washed].
“But clearly if you keep doing it at high temperatures you are going to destroy the poor note.”
Governor Mark Carney, revealed plans for polymer notes 11 weeks after joining the Bank of England in 2013.
He was head of the Bank of Canada when it introduced them in 2011 but the launch was overshadowed by rumours that the notes were scented after Canadians became convinced they could smell maple syrup on the money.
The Bank of England, which dealt with 240 000 counterfeit notes last year, hopes the new notes will be much more difficult for fraudsters to copy successfully.
By Nicola Bartlett for www.mirror.co.uk
Image credit: www.mirror.co.uk