Rand weakens as US-China trade dispute takes new twist
The rand suffered a setback on Wednesday morning as the trade dispute between the US and China took a new twist, reviving concern about the effect of a potential fallout on the world’s economy.
The Trump administration was on the offensive again, announcing late on Tuesday that it was looking to impose additional import tariffs on Chinese goods, triggering a response from China that it would do the same to defend itself.
The US has accused China of unfair trade and intellectual property theft — charges that China denies.
The US is looking impose 10% import duties on $200bn worth of Chinese goods. This is in addition to the 25% tariff it placed on $34bn worth of Chinese imports on Friday.
Global markets were shaky after the latest developments, mirrored by the weaker rand and local bonds, which are vulnerable to fickle global sentiment.
"The trade war story is still paramount to the sentiment … at the moment, and the more to-ing and fro-ing we have the more uncertain the markets will become and the more risk-averse the market will be," TreasuryOne senior currency dealer Andre Botha said in an e-mailed note to clients.
"This equates to a lot of potential volatility for the rand in the months to come should the trade war continue. The rand moved all the way down to R13.25/$ last night but is currently trading at R13.4300/$."
In the past four months, the weaker rand has tipped the scales in favour of potential increases in interest rates by the Reserve Bank, instead of potential cuts that were envisaged at the start of 2018.
The Bank’s monetary policy committee is likely to keep rates on hold when it announces its rates decision later in July, but its outlook could lean towards the tightening bias in the light of a weaker rand, which has the potential to fuel inflation.
At 10.40am, the rand was at R13.4333 to the dollar from R13.3349. It was at R15.7468 to the euro from R15.6348, and R17.8221 to the pound from R17.6690 The euro was at $1.1721 from $1.1744.