Rand rally falters as optimism over US-China trade row fades

The rand stabilised at relatively weaker levels on Wednesday morning, as the initial euphoria regarding the truce between China and the US over the trade dispute faded.

US President Donald Trump also tempered optimism over the speedy resolution of the tariff spat, which has held markets hostage for months.

“We are either going to have a REAL DEAL with China, or no deal at all — at which point we will be charging major Tariffs against Chinese product being shipped into the United States. Ultimately, I believe, we will be making a deal — either now or into the future…,” Trump said in a tweet.

At the weekend, the two largest economies gave themselves a 90-day window period to negotiate in an attempt to find a solution to the dispute that analysts says has potential to weigh on global growth.

“It is more a postponement of the issue, rather than finding a lasting solution,” according to Halen Bothma, market analyst at ETM Analytics.  “It’s very much a wait-and-see for investors.”

One of the most highly tradeable emerging-market currencies, the rand, is sensitive to the global environment, which remains fluid and uncertain.

Still, the rand has fared relatively well in recent weeks, benefiting from a big drop in US treasury yields and the dollar amid signals that the US Federal Reserve could pause in its interest rate-hiking cycle.

The US Fed has steadily raised rates since December 2015, after years of unconventional monetary stimulus to ward off the effects of the global financial crisis. 

The higher US rates has contributed to bond outflows, weakening the rand, which has knock-on effect on the outlook on inflation.

So far in 2018,  foreigners have sold a net R50bn worth of local bonds, according to JSE data.

At 9.23am, the rand was 0.27% weaker against the dollar at R13.8750, 0.16% against the euro at R15.7190 and 0.08% against the pound at R17.6065. The euro was 0.12% weaker at $1.1329.