Rand gives up gains after China announces new tariffs on the US
The local currency earlier firmed as much as 0.7% against the dollar, but sentiment was dealt a blow by China levying tariffs on $75bn of US goods
The rand was flat against major global currencies on Friday afternoon, giving up earlier gains shortly after it emerged that China was gearing up to levy tariffs on $75bn worth of US goods at the end of the month.
US stock futures dropped along with treasury yields and oil prices, with Bloomberg reporting that an extra 5% tariff will be put on American soybeans and crude-oil imports starting in September, and a 25% duty on US cars will resume on December 15.
At 2.33pm, the rand was flat at R15.2483/$, while it had gained 0.11% to R16.8785/€ and 0.21% to R18.6467/£. The euro had weakened 0.11% to $1.1068.
The rand was firmer earlier, and is still on track to snap a four-week losing streak, although a major risk looms in the form of US Federal Reserve chair Jerome Powell’s speech at the Jackson Hole symposium at 4pm SA time.
Powell’s speech is being closely watched as markets bet on future US rate cuts, with investors hoping for a shift in tone from the Fed after somewhat less dovish than expected US Fed minutes on Wednesday.
The consensus is that Powell will pre-commit to a rate cut in September, but should he fail to do so, this could create some chaos, said Vanguard Markets managing partner Stephen Innes in a note.
The rand’s volatility had eased on Friday, on a one-week basis, falling below that of the Turkish lira and Brazilian real, according to Bloomberg data. The rand’s one-week implied volatility is now at a three-week low.
Local news has been mixed, with Eskom warning of load-shedding during the week, while the Treasury has instructed government departments to cut their budgets over the next three years, in an apparent move to placate ratings agencies and the markets. The rand and local bonds have, however, not reacted to the news.
Said Rand Merchant Bank analyst Siobhan Redford, “To get the response they are looking for ... the proposals will have to be realistic to convince the public that they can stick to a lower budget.”