Trump trading blows weigh heavily on rand
THE ESCALATION of the trade war between the US and China yesterday stung the rand and the local bourse, with the local currency threatening to test R14 against the greenback.
The domestic unit reached a day’s low of R13.92 against the dollar, before paring losses to R13.77 by 5pm, still weaker than the R13.67 that it was bid at on the same time on Monday.
The rand also weakened to R18.15 against the pound by 5pm from R18.11 while it slid from R15.88 to R15.94 against the euro.
Bianca Botes, an analyst at Peregrine Treasury Solutions, said the rand’s liquidity made it significantly easier for investors to offload rand-denominated assets in times of uncertainty and de-risking.
“The rand is at a crucial point, where momentum or lack thereof will determine the currency’s direction over the next few days. Sustained momentum above the R13.90 against the dollar level will see the rand targeting R14,” Botes said.
US President Donald Trump upped the ante in the trade war between the world’s two biggest economies when he threatened on Monday night to impose an additional $200 billion (R2.75 trillion) in levies on Chinese goods; just days after the US announced $50bn in tariffs on some Chinese goods.
TreasuryONE currency dealer Andre Botha said concerns about the trade war between the two countries has washed into emerging market currencies. “Both sides have set tariffs against one another, and the market is concerned about the global growth impact that this to-ing and fro-ing of ‘trade wars’ will have,” Botha said.
The JSE also fell sharply on the back of Trump doubling down on his tariff threats towards China. The all share index fell 1.73 percent to 56 265 points, while the bluechip Top 40 index plunged 1.93 percent to 50 020 points. The industrial index led the rout on the local bourse, shedding 2.10 percent, while financial stocks closed the trading session 1.49 percent weaker.
Markets economist at Capital Economics Oliver Jones said protectionism had added to existing headwinds for emerging markets (EM) equities
“EM equities have fallen almost across the board. As happened when Trump first announced tariffs on China back in March,” Jones said.
The rand – which was on a high following Cyril Ramphosa’s election, first as ANC head and later as head of state – has endured a torrid run in the past two months as geopolitics and weak local activity data have weighed on the local unit.
Absa this week said it predicted the local currency would see out the month at a value of R13.10, a deterioration from the R11.75 forecast last week.
Research analyst at Nedbank Mehul Daya said the bank recommended keeping an eye on the dollar/rand resistance level of R13.40 and support of R14.
“We stress test our fair value model, which takes into account changes in the local economy and the international environment.
“In this stress test, our model forecasts the rand weakening close to R14.30, which is much higher than our current forecast of R13.10 for the end of 2018,” Daya added.