The rand fell for a second day, heading for its weakest level against the dollar in two months, after reports that police are set to arrest Finance Minister Pravin Gordhan over alleged irregularities at the nation’s revenue service.
The currency declined as much as 1.6% to the weakest level on a closing basis since March 16 and was the worst performer among 31 major and developed-nation currencies monitored by Bloomberg. Two-week implied volatility rose to the highest since January and was the greatest among emerging market currencies. Yields on benchmark government bonds due December 2026 climbed 11 basis points to 9.31%, the highest on a closing basis since March 29.
“People are getting tired of the circus and investors don’t like uncertainty,” said Warrick Butler, head of emerging market spot trading at Standard Bank in Johannesburg. “The emerging market universe has been a loser again today. The rand is the poor cousin because of the politics.”
Gordhan is aware of plans to arrest him and described them as an effort to thwart his campaign to end government corruption, Beeld newspaper reported on Monday. President Jacob Zuma’s office on Sunday denied the minister would be arrested, rejecting a report in the Johannesburg-based Sunday Times newspaper that a special police unit investigating Gordhan has sent prosecutors the docket of its probe of his alleged involvement in a special agency set up within the national revenue service.
By 13:52 in Johannesburg, the rand was down 1.2% at R15.5970, pulling back from the 15.65 area that provided similar support to the currency on Sunday. A sustained break through that level would likely push the currency back to the 16 level, Butler said.
The MSCI Emerging Markets Currency Index fell for a second day after Chinese data released on Saturday showed industrial production, retail sales and fixed asset investment lower than economists’ expectations, adding to concerns that global growth is failing to revive sufficiently.
The rand is also vulnerable to a possible cut of South Africa’s BBB- credit rating in an S&P Global Ratings review on June 3. The government is meeting S&P and Fitch Ratings this week for final discussions on the ratings, the Johannesburg-based Business Day newspaper reported. A Bloomberg survey this month showed 12 of 13 economists expect S&P to cut South Africa to non-investment grade by year-end.
“We’re looking at a tough trajectory for USD-ZAR going into the second half of the year as the bearish political narrative in South Africa only coincides with chinks in the global macro armor,” said Roxana Hulea, an emerging market strategist at Societe Generale in London. “We certainly haven’t seen the last episode of the long-drawn battle, but it should be clear to the markets that Gordhan’s continuity is not a given fact.”