Rand Rises as Unity Government Forms in South Africa

The South African rand strengthened after the Democratic Alliance, African National Congress, and Inkatha Freedom Party formed a unity government. Markets reacted positively to the exclusion of radical parties. This coalition raised hopes of stable economic policies, with the rand trading stronger against the dollar.

The South African rand gained on Friday after the Democratic Alliance said a deal had been struck with the African National Congress to form a unity government following last month's election. The DA reached agreement with the ANC and the Inkatha Freedom Party (IFP) to form a government after two weeks of negotiations, DA leader John Steenhuisen said.

"The rand is loving it!" said Danny Greeff, co-head of Africa at ETM Analytics. Analysts said markets also welcomed the exclusion of the far-left Economic Freedom Fighters and former President Jacob Zuma-backed populist uMkhonto we Sizwe (MK) parties.

"News of this coalition will temper concerns that South Africa would embark on a policy approach challenging the mainstream economic consensus," said Markus Korhonen, senior associate in strategic intelligence at S-RM. At 1230 GMT, the rand traded at 18.3150 against the dollar , around 0.7% stronger than its previous close.

The ANC lost its parliamentary majority in the May 29 election, for the first time since coming to power at the end of apartheid 30 years ago. "While the sustainability of an ANC-DA-IFP coalition is, of course, questionable, investors will cheer the fact that radical parties have been excluded," Greeff said.

In the first post-election parliament sitting, lawmakers were casting secret votes for the position of speaker of the National Assembly and will later on Friday elect the president. The ANC's Cyril Ramaphosa is likely to be re-elected for this role. On the Johannesburg Stock Exchange, the blue-chip Top-40 index last traded up around 1%. South Africa's benchmark 2030 government bond was up, with the yield down 2 basis point at 10.105%. (Editing by Gareth Jones and Susan Fenton)

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