The rand hit an almost four-month high against the dollar yesterday as the country’s top court said President Jacob Zuma had failed to respect the constitution.
Zuma is said to have ignored the instructions of the public protector to repay some of the R246 million spent on his private home. Analysts saw the rand’s move as the restoration of investor confidence in the rule of law in South Africa.
The currency rose 1.53 percent against the dollar and was trading at R14.9491 at 6pm. It was heading for its biggest monthly gain since 2009 as emerging markets closed out a March rally and investors looked beyond the political storm surrounding Zuma.
The rand has strengthened 5 percent against the dollar this week after Federal Reserve chairwoman Janet Yellen said the US central bank should “proceed cautiously” in raising rates, prompting a shift to riskier assets.
The stocks rose 5.6 percent – their best month since October. The rand was the strongest after the trouble among the world’s major currencies against the dollar.
While the rand gained as Chief Justice Mogoeng Mogoeng read his judgment, investors betting on Zuma’s exit may be left disappointed because of the dominance of the ANC.
Isaac Matshego, an economist at Nedbank, said the unanimous landmark judgment by the Constitutional Court was positive for investor confidence in that it upheld the supremacy of the constitution.
Other than that, he said, he could not say whether the firming of the rand was in response to the judgment or a continuation of the momentum set by Yellen.
Colen Garrow, an economist at Lefika Securities, said the rand had rallied on news that the rule of law was upheld and that Zuma was not above the law.
He said the findings of the court were important in re-establishing whatever credibility markets felt South Africa might have lost over the Nkandla controversy, in particular the findings of the public protector on the matter.
The economist said: “The president will likely encounter pressure to step down. How successful such a move is may be decided in the future and is somewhat difficult ahead of local elections.”
Garrow said what might be learnt from yesterday’s experience was that markets would make decisions for policymakers, punish them where they got it wrong, but also reward them when they got it right, as was the case yesterday.
Author: Gesture Chidhanguro