At the start of the new week, investors will cheer feedback from this weekend’s talks between the GNU’s two biggest parties. The ANC reported that its negotiating team “held a constructive engagement with the leadership of the Democratic Alliance as part of ongoing efforts to break the current budget impasse.” Similarly, the DA noted that “the engagement took place in a constructive atmosphere, with both sides speaking respectfully yet frankly about the need to resolve the impasse over the budget and to enhance cooperation between the two parties.” The ANC’s leadership will now meet today as it faces increasing pressure from across the political spectrum to bin its VAT increase proposal.

Given this opposition to the proposed VAT hike, the budget and fiscal framework is in a chaotic place, raising valid concerns among investors about routine fiscal management. With only two weeks (interrupted by public holidays) to rebuild a new framework, urgency is critical. Speculation before the fiscal framework vote was that the National Treasury had another zero VAT-hike budget it could produce, but it would demand tough cuts across ministries. This deadlock might push the ANC to rethink its economic approach, starting with halting excessive taxes that strain the private sector to prop up an inefficient government. Though signs of reform are emerging, they’re reluctant and sluggish. The current budget lacks enough incentives to spark significant private-sector investment, failing to address the severe shortfall in gross fixed capital formation in South Africa, which is about half its needed level. As a result, the growth outlook remains extremely weak.

ZAR Markets

The rand is leading gains against a broadly weaker dollar this morning, with the USD-ZAR testing support at the 19.0000 handle. Strong ZAR gains on Thursday and Friday, coupled with continued momentum after the weekend, highlight how the market has been most concerned over the GNU’s outlook. However, with positive feedback from talks over the weekend, the ZAR bulls will likely continue with recovery momentum in the near term. The risk of a fractured government is rapidly being priced back out of the market, meaning the ZAR’s risk premium over other EM currencies should narrow. Add to that the weakness of the USD, which is extending its slide this morning, and the ZAR has a lot of ground it can make up. Techs suggest a break below the 18.9600-19.000 range would open the door for a move towards 18.7394, after which the USD-ZAR’s moving averages around 18.5000 will come back into sight.

Global FX Markets

The U.S. dollar weakened at the start of the trading week, dropping 0.45% against a basket of currencies to touch 99.45, close to a three-year low experienced on April 11, as markets reacted to U.S. President Donald Trump’s erratic tariff policies. Trump’s announcements, including a brief exemption for electronics imports from China followed by plans for new semiconductor tariffs, fuelled uncertainty and eroded confidence in the dollar as the global reserve currency. The dollar fell 0.05% against the Swiss franc to 0.8158, 0.62% against the yen to 142.62, and saw the euro rise 0.3% to $1.1396, near a three-year high. Sterling held steady at $1.3120, while the Australian dollar gained 0.11% to $0.6301, and the New Zealand dollar hit a four-month high of $0.5860. China’s yuan weakened, with the onshore unit down 0.1% to 7.3022 and the offshore unit falling 0.3% to 7.3059, reflecting trade war pressures. A sell-off in U.S. Treasuries, with 10-year yields at 4.47%, and investor shifts to non-U.S. assets signalled a broader “de-dollarization” trend, though its long-term impact remains uncertain.