Executive Summary

The purpose of this strategy note is to highlight the possible scenarios for the South African rand over the next three to six months.

  • We believe three factors will drive the local currency and bond performance:
  1. The 54th ANC National Conference: 16-20th December 2017
  2. The ratings decisions by the international rating agencies: 24th November 2017
  3. The global macroeconomic environment: On-going
  • We believe that the international environment, which was a tailwind for SA financial markets throughout 2017, is likely to become a headwind for SA financial markets towards the end of 2017 and into 2018.

Levels to watch out for on the USD/ZAR and R186:

  1. Positive ANC conference, no downgrade, positive global macro = R13.20/8.60%
  2. Inconclusive ANC conference, downgrade by one agency, stable global macro = R13.80-14.50 and 8.98%-9.50%
  3. Negative ANC conference, downgrades, negative global macro = R17.00/10.00%
  • We believe that the outlook for the currency and rates is skewed to the downside, with credit rating downgrades (base case scenario) by 1H18 and the global macro-environment likely to deteriorate, offsetting any potential positive outcome from the ANC’s 54th National Conference.