Rand remains vulnerable to trade wars

The rand fell by over 1% in early trade as the oil price and US dollar strengthened.
The rand fell by over 1% in early trade as the oil price and US dollar strengthened.
iStock

The rand remains vulnerable to geopolitical developments, having lost ground on Monday as trade wars returned to the spotlight.

The local currency opened at R13.54/$ on Tuesday morning, after trading 0.79% weaker by Monday's close at R13.57/$, due to fresh US-Sino trade war threats, according to analysts from NKC Economics.

By 09:56 on Tuesday morning, the local currency was trading 0.28% weaker at R13.58 against the greenback.

"The South African currency weakened, in line with general emerging market weakness, following news that President Donald Trump plans to bar many Chinese companies from investing in US tech and to block additional technology exports to China."

NKC Economics expects the rand to trade within a range of R13.35/$ to R13.60/$.

"The market has started to become worried about the effect that a trade war will have on the global economy, and we have seen emerging market currencies under pressure due to this," said Andre Botha, senior currency dealer at TreasuryONE.

"The US dollar has also been on a slippery slope as US companies are starting to question the tariffs that are being imposed by President Trump and how they will still be profitable with the tariffs," Botha added.

"The rand will track most of the emerging markets today, and with risk-sentiment not in the emerging market's favour at the moment, we can expect the rand to be on the back foot today."

Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, also echoed views that emerging markets had taken a knock on the back of reports of the trade wars.

"Geopolitics will dominate the performance of the rand, so markets will keep a close eye on what the world leaders will be saying regarding trade," said Botes.

"The rand remains vulnerable and a range of R13.40 to R13.70 can be expected."

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