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.