Rand sheds post-election gains as US-China trade war heats up
The rand has weakened as China and the US go tit for tat on import tariffs
The rand had weakened for the first time in five days on Monday as the US and China approached a deadlock in their trade negotiations following failed talks on Friday.
The moves in the rand halted a rally that was driven by optimism that SA’s election results would strengthen President Cyril Ramaphosa’s bid to fight corruption and implement reforms needed to boost the economy.
Last week, the US imposed tariffs of 25% on Chinese imports worth $200bn, up from 10%, accusing China of not fulfilling commitments made over the past few months.
The battle between the world’s two biggest economies is hurting emerging markets on speculation that a drop in world trade will effect their economies the most.
In a series of tweets on Monday, US President Donald Trump warned China to not retaliate against the tariff hike saying that it would only worsen the situation.
CNBC reported on Monday that China appears to have ignored Trump’s threats, by placing tariffs on $60bn worth of US imports, set to kick in on June 1.
The Chinese government has vowed to not surrender to the demands of the US saying that China is open to talks but will not compromise on issues of principle, Reuters reported.
Despite the US-China trade war hanging over global markets, analysts and investors are focusing on president Cyril Ramaphosa’s selection of a new cabinet and his approach to future economic reforms.
The election outcome created positive sentiment for the rand as it strengthened to as much R14.15/$ in intraday trade on Monday.
“I will not be surprised if we see the rand maintaining relatively strong levels. If the president can actually demonstrate that he is consolidating his political power and actually making his mark on the cabinet, then it’s quite possible that this could be a slightly longer-term run for the currency, the bond market, as well as equities,” Efficient Group chief economist Dawie Roodt said.
Uncertainty regarding the election outcome had dissipated, and foreign investors and lenders may now be a little more comfortable with their exposure to the rand, wealth manager at PSG Wealth Ricus Reeders said.
At 2.30pm the rand had weakened 1.03% to R14.3121/$, 1.18% to R16.1029/€ and 1.23% to R18.6446/£. The euro was marginally firmer at $1.1252.
Brent crude was up 1.78% to $72.02 a barrel, gold 0.12% to $1287.11/oz, while platinum fell 0.57% to $858.09.
The yield on the benchmark R186 added six basis points to 8.515%. Bond yields move inversely to bond prices.