Rand pares gains as Turkey-US trade spat ramps up

The rand failed to brake through R14 to the dollar on Tuesday afternoon after the euro came under renewed pressure by the greenback.

The local currency was still firmer, however, compared to opening levels, but analysts emphasised that further volatility could not be excluded as little has been done to resolve the Turkish crisis. The trade spat between the US and China also remains unresolved.

The euro firmed to $1.1429 during the day, after German growth surprised to the upside in the second quarter as solid domestic demand boosted economic activity.

However, the euro’s strength was short-lived amid indications that the trade war between the US and Turkey was set to intensify, after Turkish President Recep Tayyip Erdogan said his country would boycott US products including Apple.

Turkey is receiving support from Russia, with the latter’s foreign minister, Sergey Lavrov, who is visiting Ankara, accusing the US of seeking an unfair competitive advantage in global trade.

Although the lira has regained some lost ground against the rampaging dollar, it still remains substantially weaker than it was at the beginning of last week.

FXTM analyst Hussein Sayed described the rand’s 10% fall in response to the Turkey crisis as “bizarre, astonishing and a complete exaggeration”.

“There is no clear explanation as to why the currency dropped by such a dramatic amount, where other high-yielding currencies failed to show such weakness,” he said.

The euro and pound also came under pressure on the news that a car crashed into barriers outside the UK houses of parliament on Tuesday morning, injuring pedestrians, just metres away from the site of a terrorist attack in 2017.

At 2.59pm, the rand was at R14.1652 to the dollar, from R14.4131. It earlier firmed to R14.0216. It was at R16.135 to the euro from R16.4464, and at R18.0915 to the pound from R18.4034. The euro was at $1.1391 from $1.1409.

Local bonds were firmer with the 10-year R186 benchmark last bid at 8.94% from 8.99%.

The US 10-year treasury was flat at 2.8804%.

Last week saw net outflows from the local bond market of R7.5bn, according to JSE data. After a temporary reprieve, net outflows have risen over the past two weeks, with the year-to-date figure now at R32.8bn.

“Risk-off contagion across emerging markets is likely to persist until any positive developments emerge from Turkey,” Nedbank analysts said.