By Jameel Ahmad, Global Head of Currency Strategy and Market Research at FXTM
The South African Rand seems to have commenced the final month of the year on the front foot, advancing to its highest level against the Dollar since October 18, slightly above 13.40 on December 6. A gradual decline in buying momentum for the Dollar has probably been the likely catalyst contributing to a strengthening Rand, but volatility could swing in either direction as attention is focusing on the African National Congress leadership conference next week. The ANC conference will be seen as a key risk event for investors, with its outcome not only likely to play a major role in how the Rand concludes the year, but also towards its future outlook in 2018.
It appears that investors have positioned themselves on the likelihood that current Deputy President Cyril Ramaphosa will be victorious next week, but the markets are likely to take profits on recent momentum as the ANC conference looms and anxiety sets in.
There is optimism that if victorious, Ramaphosa would receive a positive reaction from the financial markets. However, it shouldn’t be discounted that irrespective of the outcome next week, fundamental issues will remain, and the economy will take some time to address them. While the appointment of Ramaphosa has the ability to reduce the impact of political risk, and consequent risk premium being priced in to the Rand, domestic issues such as slacking consumer demand, weakening public finances and warnings from respected ratings agencies will not be going away overnight.
The economy will still need fiscal reforms regardless of who wins the race to become the next leader of the ruling party. The South African Reserve Bank (SARB) has stated that further monetary stimulus is not an offer on the table, so pressure will remain on the South African government to introduce the reforms needed to improve both domestic and investor confidence.
On a more global scale, Bitcoin continues to dominate headlines. The cryptocurrency managed to resume its advance beyond $15000 on December 7, representing a rally now standing at 1500% year-to-date.
The astonishing new milestone in the value of Bitcoin comes just days before the first U.S. futures contracts begin trading. It appears that Bitcoin is making strides towards being accepted by the mainstream and this is supporting buying demand. With Cboe Global Markets and CME Group set to launch futures on Bitcoin this month, and Nasdaq planning for its launch next year, the expectations of many is that there will be more milestones for the Cryptocurrency to reach before 2017 concludes.
Legitimacy in Bitcoin is increasing as more institutional investors admit interest, although my concern is that the buying frenzy is an extremely overcrowded trade. Once Bitcoin is available as a CFD, investors will be able to take positions on both aspects of the market, meaning that the risks around trading Bitcoin will need to be explained to avoid potential traders being caught on the wrong side of the trade.
Disclaimer: This article contains personal opinions- the content is not investment advice and/or a solicitation for transactions, and nor does it imply an obligation to purchase investment services in financial instruments, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of information or data herein, and assumes no liability for loss arising from investment based on the same..
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