Rand holds firm as US fires a shot in the trade battle with China

The rand was a bit shaky on Friday morning but was holding up reasonably well in the context of the trade row between the US and China, which threatens to hurt global economy.

The US fired the first salvo by officially imposing tariffs on Chinese goods worth $34bn, setting the scene for a possible trade war. But global markets showed little sign of stress, with Asian equity markets actually turning positive after a shaky start to the day.

Though slightly weaker in early trade, the rand was poised for its best weekly close to the dollar in just more than a month, helped in part by a lower dollar.

“The stars need to align a little for the rand to post significant gains, starting with the [US] nonfarm payroll number this afternoon,” said Andre Botha, a trader at TreasuryOne.

“With the current mixed bag out of the US, the possibility exists that the number could disappoint and the dollar could continue its slide into the afternoon.”

Markets will be interested in the wage growth component of the jobs report, which is widely believed to be a good signal for inflationary pressures.

Average hourly earnings are expected to have grown at an annual rate of 2.8% in June, according to the data from Trading Economists, up from 2.7% in May.

The robust wage growth could back the case for the US Federal Reserve to proceed with its interest rate-hiking cycle, boosting the dollar in the process.

The stronger dollar could hurt the rand and other emerging-market currencies via bond outflows, as was the case in the second quarter. But the recent sell-off appears to have created buying opportunities for other investors in the local fixed-income market.

The yield on the R186 bond was at 8.69% in midmorning trade, its lowest level in about a month, from 8.72% on Thursday.

At 10.49am, the rand was at R13.5586 to the dollar from R13.5361. It was at R15.8814 to the euro from R15.8270, and R17.9534 to the pound from R17.8949

The euro was at $1.1712 from $1.1692.