Key points:
- South African rand rose against the US dollar, trading at 18.36540.
- Market optimism surrounds the potential formation of a coalition government.
- Hopes are high for a business-friendly coalition including the Democratic Alliance.
The South African rand rose against a broadly stronger US dollar (Currency pair: USDZAR) expecting political parties to agree on the formation of a coalition government.
USDZAR pair was lowered to the 18.36540 zone, making the ZAR one of only three G20 currencies to rise against the US dollar, as markets eagerly await the outcome of the recent talks among the major political parties of South Africa.
The image above shows the South African rand gaining strength against the US dollar, as observed on the VT Markets app.
The seventh parliament is scheduled to be seated on Friday, with elections taking place for the parliamentary speaker and the South African president, providing a timeline for the African National Congress (ANC) and other parties to form a coalition.
Market hopes are pinned on the possibility that the opposition Democratic Alliance (DA), seen as more business-friendly and likely to pursue economic reforms, will play a prominent role in the new government.
Some signs of positivity for the African nation
The potential formation of a coalition government that includes the DA is seen as a positive development for economic prospects of South Africa. A business-friendly government could introduce much-needed economic reforms, boosting investor confidence and leading to a stronger ZAR.
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If the coalition government is successfully formed and includes the DA, the ZAR could see further appreciation.
However, market volatility may persist until the political landscape becomes clearer. A stable, reform-oriented government could lead to sustained strength in the ZAR, particularly if economic reforms are implemented effectively.
