Facts are scarce and rumours are aplenty as ‘Gordhangate’ appears to approach its climax.
Finance Minister Gordhan’s axing is by no means a done deal, with the political game of chess as complicated as ever.
There are two probable outcomes:
- Stalemate: President Zuma is prevented from removing Minister Gordhan (probably because the ANC Big Six are opposed to the idea), instead remaining silent as the issue slowly passes with the rand gradually normalising
- Gordhan fired: This scenario opens up even more unanswered questions, with Gordhan’s replacement the key. If Zuma gets it wrong it could lead to his demise, or a major split with the ruling party. If played correctly, the President will emerge victorious, stronger than ever in the lead up to the ANC’s December National Conference.
So, what is the likely effect on the rand?
It’s important to look at the facts and past history, setting aside emotion, fake news and hysteria. ‘Nenegate’ saw the rand lose 15% over the following month (December 2015).
If we apply the same train of thought this time around, the rand could end up near R14.20 to the US Dollar.
But it’s 2017, and the rand’s fundamentals are vastly different to that of 2015. The rand is in a strengthening cycle (having weakened in 2015), SA’s current account has narrowed sharply, commodity prices have stabilised and GDP prospects are improving.
Nenegate accelerate the rand’s weakening trend, where Gordhangate will be working against a strengthening cycle.
The rand has lost 5% since news broke of Gordhan’s recall, but in a more favourable climate rand losses from a Gordhan axing should be significantly smaller.
A further 5% weakness could see the rand test R13.60 to the US Dollar. If news emerges that Gordhan will be keeping his job, we could see the rand snap back to around R12.50 to the US Dollar.
Either way, this is yet another massive own goal for Team SA – if only Bafana’s strikers were this prolific.
Given the great deal of uncertainty, and the violent swings we may see in the market, many people are concerned and want to hedge against the market volatility.
We recommend contacting Currencies Direct‘s Gareth Frye, head of their Currency Dealing division, so you have the pros on your side.
He can be reached at Gareth.F@currenciesdirect.com, or ring him on 021 418 0105.
