Rand bounces back as investors ignore trade row between US and China

The rand was off to a positive start on Thursday, with investors opting to overlook the trade row between the US and China, which contributed to holding the markets hostage over the past six months.

With no new developments on the trade issue over the past 24 hours, investors tiptoed back into risky assets, helping the rand in the process to recover some lost ground.

For SA, the effect of fears about a trade war have been felt mostly through a weaker rand, which have raised inflation concerns that could tip the scales in favour of higher interests by the Reserve Bank.

The higher rates scenario contrasts sharply with the one at the start of 2018, when economists expected the Bank’s monetary policy committee to cut rates more than once in 2018.

“We saw a couple of days ago that there is still some risk appetite out there for risky assets when the rand rallied to R13.25/$,” TreasuryOne senior currency dealer Andre Botha said in an e-mailed note to clients.

‘Should the latest trade war drama play out, we can expect the rand to start driving lower [weaker], but for the moment expect the rand to trade within ranges as we await news from abroad.”

The US is looking to impose 10% import duties on $200bn worth of Chinese goods. This is in addition to the 25% tariff it placed on $34bn worth of Chinese imports last Friday.

China has vowed to retaliate to the latest round of tariff proposals, fuelling concerns of potential fallout on the world’s economy.

“The US decision to consider imposing 10% tariffs on a further $200bn of Chinese exports was clearly a spark for a risk-off day in trading,” said Bas van Geffen, analyst at Rabobank International in a note.

“With this worst-case scenario lingering over global trade, one can only hope that both sides cool down and manage to negotiate a more amicable end to this trade war, before ‘fighting fire with fire’ engulfs the global economy in a sea of trade flames.”

At 10.47am, the rand was at R13.4775 to the dollar from R13.5659. It was at R15.7417 to the euro from R15.8371, and R17.8041 to the pound from R17.9017. The euro was at $1.1680 from $1.1676.