South Africa: Turnarand?

ZAR volatility has climbed over the last few weeks while its trend decline since the start of last year seems to be ending. Both of these developments partly reflect the ongoing political turmoil. The latest bout of tension revolves around the response of the Supreme Court to opposition calls for a parliamentary vote of no confidence in President Zuma to be organised as a secret ballot which, they argue, will increase the odds of success.

The Supreme Court is due to begin formal hearings on May 15. In any case, secret ballot or not, President Zuma is likely to remain in place and the uncertainty looks set to weigh on the rand until well after the ANC elect a new leader in December.

More than just political intrigue. Further downward pressure will come from the tepid outlook for economic growth, risk of fiscal slippage, faltering household and business confidence, and sub-investment credit rating. While its not all doom and gloom as inflation should ease to within the SARB's 3-6% target later in the year and agricultural output should pickup after several years of being hit by drought conditions, the risks to the economy are firmly tilted to the downside. With all this in mind, look for the currency to soften from its current 13.4 against the USD to 14.2 by the end of the year before stabilising at around 14.6 over 2018Q2/2019.