The rand has picked up a little since South Africa’s President Jacob Zuma offered some support to his embattled finance minister. Currency watchers are not convinced this will last.

The currency has strengthened another 0.6 per cent this morning, after a similar climb yesterday, and currently stands at ZAR14.13 to the dollar.

Bank of America Merrill Lynch is predicting a big drop for the rand before the end of the year, with renewed political uncertainty and the likelihood of a rate hike in the US wiping out all the gains it has made so far this year. The dollar is heading to ZAR16 by the end of this year, it reckons, taking the South African currency back to the depths it hit after President Zuma sacked previous finance minister Nhlanha Nene at the end of last year. The rand’s exchange rate has only ever spent 20 days above 16.00, and the rand had been one of the best-performing emerging market currencies this year until this week.

The rand’s long rally came to an abrupt end at the start of the week after reports that finance minister Pravin Gordhan could face arrest as part of a police investigation that many believe is politically motivated.

South African markets had previously been boosted by the result of municipal elections earlier this month, which strengthened the opposition to President Zuma’s ruling ANC. However, BAML sub-Saharan Africa economist Oyin Anubi predicted that positive impact would also wane.

Although the election success of the Democratic Alliance can be viewed as a positive sign for the maturity of South Africa’s democracy, ruling as a minority party may render them less effective in the short term, causing positive market sentiment around the election results to wane.

Analysts at Citi are also wary, moving from bullish to neutral on both the rand and South African government bonds this week. They pointed out that the rand’s plunge around new year was reversed in part by Mr Gordhan’s appointment, and “at this time, there does not seem to be a candidate that would be able to replicate Gordhan’s calming effect” if he is removed from office.

“South African assets are likely to lag behind for as long as the current local political uncertainty remains,” the bank said.

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