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Rand leads currency drop as Zuma replaces finance minister

South Africa’s rand led declined in major currencies a day after President Jacob Zuma replaced Pravin Gordhan as finance minister and appointed new ministers to portfolios including mining and energy.

The rand snapped three days of gains, weakening 0.5% to 10.35 per dollar by 11.20am in Johannesburg, the most among 16 major currencies monitored by Bloomberg. Yields on government bonds due December 2026 climbed three basis points, or 0.03 percentage point, to 8.08%.

Zuma, who took office for a second five-year term after the ruling ANC’s election win on May 7, promoted Nhlanhla Nene, a deputy to Gordhan, who headed the ministry since 2009. He enlarged his Cabinet to 35 members from 33 and created a ministry responsible for small-business development.

The Cabinet “is less business-friendly than the market expected”, John Cairns, a foreign-currency strategist at Rand Merchant Bank (RMB) in Johannesburg, said in a note to clients. Nene’s experience as deputy minister should reassure markets about policy continuity, RMB said.

Data on Tuesday may show South Africa’s economy contracted in the first quarter as a strike at platinum mines curbed production, weighing on the rand. Gross domestic product probably fell 0.2% in the three months through March, compared with growth of 3.8% the previous quarter, according to the median estimate of 19 economists in a Bloomberg survey.

Weaker growth is “rand-negative” because it reduces the likelihood of a reserve bank rate increase and puts pressure on the current-account deficit, Bruce Donald, head of currency strategy at Standard Bank Group in Johannesburg, said in a note to clients. – Bloomberg

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