Headlines buzz with speculation of a GNU split, triggered by the DA’s legal challenge to the ANC’s proposed employment and equity laws. Some expect coalition partners to agree on all issues, projecting unity while deferring to the leading party’s policies. This is a misunderstanding. Coalitions don’t require consensus; they aim to prevent one-party dominance. South Africa’s stark ideological divides make coalitions complex yet essential. The ANC must navigate this shift, and public frustration won’t alter it. The DA, accustomed to opposition, readily contests policies it views as flawed. Rather than clashing, the ANC could involve the DA in policy discussions to foster collaboration. Disagreements are inherent in coalitions, not a weakness. They ensure diverse perspectives shape governance, balancing power and preventing any single ideology from prevailing unchecked. Against this backdrop, readers are reminded that a GNU split would not serve either the DA or the ANC, meaning any headlines implying that should be questioned.
On the data front, the local card is headlined by the S&P Global economy-wide PMI. It is expected to reflect ongoing economic challenges, following March’s weak reading of 48.3. Another contractionary (sub-50) print is likely, as the private sector grapples with persistent issues like energy constraints and subdued demand. However, a stronger rand and easing global inflationary pressures could provide some relief, supporting input cost moderation. Services and manufacturing sectors may show mixed performance, with services likely outperforming amid stabilising conditions. Attention will focus on new orders and employment sub-indices for signs of recovery. Another reading below 50 would underscore South Africa’s economic fragility, while a surprise above could hint at resilience, influencing market sentiment and policy outlook.
ZAR Markets
The USD-ZAR has plunged, driven by a resurgent ZAR more than anything else. The ZAR is reclaiming ground against major currencies, with its trade-weighted value rebounding. Fears over the GNU have dissipated as markets embrace its role in curbing ANC excesses, fostering fiscal discipline. The GNU’s stability matters less now than a month ago; smaller parties and the DA have blocked ANC’s VAT hike, a dynamic unlikely to shift even if the DA exits. An ANC-EFF alliance seems improbable, given EFF’s rejection of the GNU and its declining voter base. All the while, gold’s rally bolsters the ZAR, enhancing trade balances and, combined with SA’s attractive carry and undervaluation, sets the stage for USD-ZAR to test 18.0000 in the coming weeks.
Global FX Markets
The U.S. dollar faced pressure on Tuesday amid a sharp two-day rally in the Taiwanese dollar, which influenced other Asian currencies and exposed vulnerabilities in the greenback. The Taiwan dollar surged 8% to a three-year high following U.S.-Taiwan trade talks, raising speculation of a tacit agreement to allow its appreciation. Hong Kong’s central bank intervened to prevent its currency from strengthening too much, and China’s yuan rose after a holiday. The shifts suggest potential currency strategy shifts linked to trade negotiations. Meanwhile, other currencies like the Australian dollar, yen, and euro gained ground, reflecting market scepticism about the U.S. dollar’s safe-haven appeal. It is worth noting that speculators are increasingly betting against the U.S. dollar, with short positions rising to $16.80 billion for the week ending April 29, up from $14.45 billion the previous week.