Fears of further escalation of US-China trade war hurt rand

Research Analyst at FXTM Lukman Otunuga said that the rand weakness had little to do with a change of sentiment towards the local currency, but rising risk aversion amid trading tensions. “Although the rand has entered the trading week in a depressed fashion thanks to heightened concerns over US-China trade developments, it is certainly not alone, as other emerging market currencies have also depreciated,” Otunuga said.

Trump said the US would provide details of more tariffs on a further $325billion of Chinese exports to the US. Beijing promised to retaliate. The local currency on Friday was one of the best-performing emerging market currencies, as it became clear that the governing ANC was heading towards a decisive victory in the national elections, giving Cyril Ramaphosa potentially a full term as head of state.

However, the currency joined the JSE in taking the back foot after weekend developments in the US-China trade war included more Trump tweets, and China denying that they had reneged on any prior agreements.

Andre Botha, senior dealer at TreasuryONE, said that the elections outcome did bring policy certainty back into the market, but the opposite current from the US pushed the currency down.

“However, there are opposite forces currently in the market, with the market waiting for Chinese retaliation after the US imposed a fresh round of tariffs on the Chinese,” Botha said. “The breakdown in the current trade talks leaves a void which can only be filled by uncertainty, which could make the current rand strength short in duration.”

The all share index closed the trading session 0.83percent in the red, with blue chip financial stocks surrendering their Friday gains with FirstRand down 0.92percent and Capitec down 0.66percent, while other banking stocks were flat, with Standard Bank up just 0.1percent and Nedbank up 0.5percent, and Absa just 0.78percent stronger. Naspers, the most valuable company on the JSE, saw its stock 2.55percent lower, shedding R87.19 of its share price.

The rand could come under further pressure today on the release of the first quarter unemployment rate, which is largely expected to show an increase.

BUSINESS REPORT