Rand at the mercy of global forces and the rising dollar

The rand was shaky on Monday morning, indicating a jittery mood on global markets.

The local currency was at the mercy of the continuing trade spat between the US and China, which is contributing to a drop in investor appetite for assets deemed risky.

In the latest twist in the trade drama between the two largest economies, on Friday, China threatened to impose tariffs on $60bn worth of US goods as counter measures.

Earlier, the US had threatened to increase tariffs from an initial 10% to 25% on $200bn worth of Chinese imports, in attempt to reduce trade balance deficit.

The dollar also showed positive momentum, stretching its rally into a third week in a row against a basket of other currencies, despite the underwhelming US nonfarm payrolls report on Friday.

The US created fewer jobs in July relative to market expectations, and average hourly earnings growth — which is where the market focus was — disappointed, too.

The dollar initially sold off on the closely watched US jobs report on Friday before subsequently regaining ground, implying that markets has treated the data as possibly a once-off blip rather than the start of a trend.

Nonfarm payrolls increased by 157,000 in July, below the expected 190,000, and their lowest gain since March. But the unemployment rate fell to 3.9% from 4%, while annual average hourly earnings growth was unchanged at 2.7%.

While US economy has been in reasonably good shape, its inflation has been relatively subdued. As a result, the US Federal Reserve has increased interest rates at a moderate pace since 2015.

Higher US rates tend to make the dollar more appealing as they boost returns on assets denominated in the currency, thus putting other currencies such as the rand under pressure.

The weaker and volatile exchange rate has posed a potential threat on the outlook for local inflation, which has been rising steadily from its cyclical seven-year low, reached in March.

At 10.15am, the rand was at R13.3917 to the dollar, from R13.3346 at the US close on Friday. It was at R15.4796 to the euro from R15.4285, and at R17.3561 to the pound from R17.3491.