Rand softer, but some post-election optimism still evident
The rand was slightly weaker on Tuesday afternoon, faring better than its emerging-market counterparts, however, as the US-China trade war continues to hog the spotlight.
Sentiment improved a little on Tuesday as a result of a softer tone from US officials regarding the blacklisting of Huawei. The Chinese tech-giant has been given a temporary 90-day right to use Google’s operating system, Android, which has reduced fears of retaliation from Beijing.
Emerging-market currencies, however, continue to be buffeted by trade-war headlines, with analysts expecting pressure on riskier assets to continue for weeks, or perhaps even months.
At 2pm, the rand had weakened 0.37% to R14.4375/$, 0.2% to R16.0926/€, and 0.21% to R18.3381/£. The euro was 0.17% weaker at $1.1147.
The pound is now at a four-month low against the dollar, as investors priced in yet another failure by UK Prime Minister Theresa May to get her Brexit deal through the British parliament.
Although global markets have not fully priced in the prospect of US-China trade talks breaking down, the outlook for emerging-market currencies is deteriorating along with that for global economic growth, said Per Hammarlund, chief emerging markets strategist at SEB in Stockholm.
The sell-off would be gradual as markets adjust to the increasing likelihood of prolonged US-China tension, but local factors in SA continue to be somewhat supportive, Hammarlund said.
“The ANC election victory, albeit by a reduced margin, will keep hopes up of market-friendly economic reforms and a restructuring of loss-making, state-owned enterprises (SOEs), notably Eskom, which will support the rand.”
There are number of other events this week that could generate volatility in the rand, including local inflation data for April on Wednesday, and a Reserve Bank monetary policy pronouncement on Thursday.
Along with various global economic data releases, the US Federal Reserve minutes will be released after SA markets close on Wednesday, and could give clues as to the future policy direction of the world’s most influential central bank.