US President Donald Trump
Image: Facebook/White House
After the rand hit a record high on Wednesday night, flirting with R20 to the greenback and surpassing levels last seen in June 2023, it retreated somewhat on Thursday, trading at around R19.44 around lunch time.
This settling came even as systematic issues such as worries over the ongoing stability of the new administration continues to unnerve markets and US President Donald Trump’s 30% tariffs on South Africa came into effect.
Nolan Wapenaar, co-chief investment officer at Anchor Capital, said that market prices, global factors and what is impacting the market is changing by the hour. “It has been a busy and volatile week. At the moment, everyone is digesting the latest set of tweets from Trump.”
What matters, Wapenaar noted, is fundamental that tariffs are higher than previously; tariffs are paused not gone and that trade negotiations will be difficult.
On Wednesday, Trump paused some of his heavier tariffs following massive hits to global markets following his shock “Liberation Day” statement on Tuesday that saw higher duties than previously expected being announced.
The US President declared a 90-day trade cease-fire for most countries, taking the bulk of US import countries down to 10% again – although China’s import duties increased to 125% after it retaliated with tariffs of its own.
North-West University Business School economist Prof Raymond Parsons said there is still a “high level of unpredictability in the US tariff situation and in the erratic way in which decisions continue to be taken. It creates persistent uncertainty around business decision-making regarding investment and supply chains, which promotes a ‘wait-and-see’ attitude.”
Parsons added that South Africa now has an opportunity, during the 90-day window, to broker trade deals that will be beneficial to the automotive and agricultural sector, which are likely to be hardest hit by tariffs.
Old Mutual Group Chief Economist, Johann Els, has indicated that South Africa’s direct trade exposure to the US is relatively limited. While US data indicates a $9 billion trade deficit, equivalent to 2% of South Africa’s gross domestic product, local figures suggest a more modest $2 billion gap.
Els noted that, based on how other currencies, such as those in Australian and New Zealand dollars, were performing against the US dollar, the rand’s decline was not just because of the instability of the Government of National Unity (GNU). “It's a broader global question.”
After the rand hit a record high on Wednesday night, flirting with R20 to the greenback and surpassing levels last seen in June 2023, it retreated somewhat on Thursday, trading at around R19.44 around lunch time.
Image: Morningstar
Wapenaar said that the inability of politicians to work together has also done damage. “Pushing reset and trying again might lead to a stronger framework for governing the country, but it also might not. Animosity has been stirred and that will take time to heal,” he said.
Global currency markets are now largely pricing out the effect of the Trump Tariffs (at least for now) while the GNU overhang remains, said Wapenaar. He said that “one can argue that much of what is in today’s price is domestics”.
Such an issue will not recover quickly, but if all were to calm down, Anchor Capital thinks that the rand will gradually drift back to the low R18 or high R17, said Wapenaar. “For now, it is clear that GNU-1 had some challenges, it is about what GNU 2.0 looks like. Next month we will focus on what the new tariffs mean,” he noted.
Els is more optimistic than Wapenaar, believing that the rand is undervalued compared to fundamentals and could reach as low as between R15 and R15.99 to the dollar over time. Much, however, hinges on what the US’ Federal Reserve does in terms of cutting interest rates as cuts could see investors seeking higher returns as the greenback would be under pressure.
“I think the Fed will cut 100 to 125 basis points in the second half of the year and the Reserve Bank likely only 50bps. So that will also support the rand,” said Els. He indicated that the local central bank may cut again from the middle of the year.
IOL
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