S. African Rand Heads for Month-Low as Gordhan Probe Deepens

  • President Zuma says supports Gordhan, won’t stop investigation
  • Rand leads global currency losses as political risk increases

South Africa’s rand weakened to a one-month low against the dollar, erasing an earlier gain, as a statement of support by President Jacob Zuma failed to allay investor concern that Finance Minister Pravin Gordhan may be replaced.

The rand fell 0.6 percent to 14.2527 per dollar by 5:11 p.m. in Johannesburg, poised for the weakest closing level since July 27 and bringing its decline in the past four days to 5.3 percent. The yield on rand-denominated bonds due in December 2026 climbed two basis points to 9.06 percent, set for the highest close in a month.

The presidency said on Thursday it wouldn’t stop an investigation by a special police unit into allegations that Gordhan oversaw the establishment of an illicit investigative unit during his tenure as head of the national tax agency, even as Zuma expressed “full confidence” in the finance minister. Opposition parties and some independent analysts have accused Zuma, 74, of trying to gain greater control of the National Treasury to further his and his allies’ economic interests before his second and final presidential term ends in 2019. He has denied the allegation.

“The country remains on a knife edge,” said Warrick Butler, head of emerging-market spot trading at Standard Bank Group Ltd. in Johannesburg. “As we all know too well these days, the country’s leadership decisions can be unpredictable.”

Gordhan was summoned to report to the Hawks police unit on Thursday. The finance minister said on Wednesday he had done nothing wrong and wouldn’t report to police.

Risks Ahead

The rand’s one-month implied volatility against the dollar, based on prices of options to buy and sell the currency, remained above 20 percent on Thursday, the highest among emerging-market currencies, indicating that traders still see risks ahead.

“The predominant factor is the local uncertainty around government policy and whether Pravin Gordhan will be around,” said Andre Eerenstein, an interest-rate derivatives specialist at FirstRand Ltd.’s investment-banking unit. “People are very uncomfortable, they’ve seen a lot of volatility and they are uncomfortable positioning themselves.”

Earlier, the rand gained as investors chased high-yielding assets before Federal Reserve Chair Janet Yellen’s speech at Jackson Hole on Friday. Zuma’s statement in support of Gordhan initially sparked a rand rally that soon dissipated.

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