‘I have directed the summons to be withdrawn with immediate effect. There is therefore no longer any need for your client to appear in court on the charges as listed in the summons.’ These were the welcome words from National Prosecuting Authority (NPA) head Shaun Abrahams relating to fraud charges against South African finance minister Pravin Gordhan and two former SA revenue service officials.
The finance minister’s possible removal has caused volatility in local treasuries and has weighed on sentiment around the ratings agency reviews set for release on 2 December. While news of charges being dropped certainly doesn’t secure South Africa’s investment grade rating, it does improve the probability.
The rand leading gains
The rand has strengthened against its major currency peers on the news of the summons being withdrawn, and it is leading gains in emerging market currencies. The domestic currency is now moving towards its best levels of the year against some of the majors.
IN_USDZAR looks to be targeting near-term support between R13.37 and R13.19 (see chart below). However gains against the dollar might be muted towards the end of 2016 when we consider the likelihood of higher US interest rates and the possibility of a South African rating downgrade.