Picture: REUTERS
Picture: REUTERS

The rand is taking escalating trade friction between the US and China in its stride, extending last week’s gains on Monday.

While the rand is still 8% weaker against the dollar in 2018, analysts have expressed surprise about the resilience of the currency, given the official start of the trade war on Friday.

The general rand weakness in 2018 has been due to a host of factors, including the trade conflict and tightening monetary policy in the US and eurozone. Domestic factors such as lower than expected economic growth and the land expropriation debate have contributed to the currency’s overall slide.

The rand was the third best performing currency against the US dollar last week, firming 2%.

Its performance lagged behind the Argentinian and Mexican currencies.

The rand looks set to edge towards R13 to the dollar by the end of the week, but US inflation data on Thursday could prevent further strength, said Rand Merchant Bank’s Mpho Tsebe.

US inflation data will be closely scrutinised by investors, after the dollar came under pressure last week when employment data showed flat wage growth.

The local currency and global markets were still at the mercy of further protectionist moves, said Herenya Capital Advisors founder Petri Redelinghuys. "Overall I am a bit surprised markets are higher on the implementation of the trade war, which has officially begun," Redelinghuys said.

"It feels as if the markets are pricing in a positive solution to all these developments," said Redelinghuys. Volatility could, however, return as markets get additional information on any compromises between US and Chinese negotiators.

The US implementation of $34bn in tariffs against China has widely been interpreted by the market as the official start of the trade war, but global markets have been buoyant, extending Friday’s gains on Monday.

"We can safely say the tariffs have been priced in and any market movement will happen only if the status quo changes," said TreasuryOne senior currency dealer Andre Botha.

Sasfin securities bond analyst Alvin Chawasema said it seemed markets had priced in the effects of the trade war and were waiting for fresh catalysts.

"A lot of this has got to do with the fact that this is not new news, we know there are tariffs, we know what the quantum is, and we know that the Chinese have retaliated.

"In addition, activity levels are thin, the school holidays here and the northern hemisphere summer is sapping some of the liquidity out of the market," said Chawasema.