Rand in Free Fall after Gordhan Arrest Rumours

Self-inflicted punishment is about the best way to describe what is happening to the South African Rand at the moment.

Reports in the press are now speculating about what to read into the information that Finance Minister Pravin Gordhan might face arrest. Ahead of the credit ratings review in June this year, this is indeed an unwelcome development and if anything simply raises the probability of a downgrade and with that the much-feared junk-status.

It also means that the pessimistic view of how SA’s economy could perform this year is back on the table and foreign investors will need to price for that. Ahead of the South African Reserve Bank’s (SARB’s) decision on this Thursday the latest bout of ZAR weakness, which comes at a time when the oil price is surging, has simply raised the stakes. At the moment, the ZAR is one of the worst performing emerging market currencies and it is very difficult to bet against the local unit weakening even further despite the local unit being oversold and the underlying fundamentals turning more ZAR supportive. This all comes in combination with pictures of looting students and burning universities, which are travelling over all news channels world-wide. Pictures and facts that cannot stimulate any positive reaction.

The only good news for the ZAR, which may help stem the negativity, is the fact that global equity markets have performed a little better and the Performance Index VIX has edged off its highs, according to SasFin Commercial Solutions.

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