Rand gets its mojo back - Rabobank

"Rising market optimism that Deputy President Cyril Ramaphosa will become President Zuma’s successor elevated the South African rand to the status of the best performing EM currency so far in December," Rabobank analysts note.

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Over the weekend the governing African National Congress will elect its new leader who is also likely to become the country’s next president after a national election in 2019. Market friendly Ramaphosa and Zuma’s ex-wife Nkosazana Dlamini-Zuma are the main two candidates.

While the market expects Ramaphosa to win, one should not underestimate the possibility that Nkosazana Dlamini-Zuma succeeds her ex-husband President Zuma. Her victory would be a negative signal for investors and ratings agencies as she fully endorses Zuma’s radical economic transformation based on giving the black majority a bigger stake in the economy.

Essentially, Dlamini-Zuma would prolong her ex-husband’s rule during which South Africa lost its investment grade.

In terms of potential market reaction, the September low at 12.7396 will be next potential target for USD/ZAR should Ramaphosa wins. The year-to-date low at 12.3126 set in March could be a stretch too far over the short-term horizon as the US dollar may receive a boost from the Repubilcans’ progress on tax reform. We are likely to witness a much stronger response from the market should the ANC elects Nkosazana Dlamini-Zuma. Under this negative market scenario the November high at 15.5742 would be an initial target for USD/ZAR.