Rand steadies at weaker levels but remains at mercy of global markets

The rand steadied at relatively weaker levels in midmorning trade on Tuesday, but remained vulnerable to the ebb and flow of world markets.

The prospect of a trade war has created uncertainty in the global market place, with many unsure of how it might affect the global economy.

The US and China in particular are engaged in what appears to be a tit-for-tat trade spat, which some characterise as the tactic on the part of the US to strike a better deal.

“Arguably, the bigger impact of the tariffs is not directly on trade volumes, but more the uncertainty it creates for businesses with complex value chains that span several countries,” Old Mutual Multi-Managers analysts Dave Mohr and Izak Odendaal wrote in an e-mailed note to clients.

“A further escalation of the trade dispute would be negative for the US and Chinese economies, and, by implication, the world economy. Therefore, it is in the interests of both countries to step back from the brink.”

The rand has felt the effect of the trade dispute via poor sentiment on global markets, which has played out in reduced appetite for local assets, notably shares and bonds.

The rand has weakened substantially since peaking at R11.50/$ in late February, raising inflation worries and in turn the prospect of higher interest rates.

The global environment, as well as the recent run of disappointing local data, has chipped away at the confidence shown by financial markets in February when Cyril Ramaphosa became head of state.

But analysts have said bargain-hunters are likely to return to local bonds, which offer attractive yields compared with the developed markets, once the dust settles on the global markets.

The yield on the benchmark R186 bond, which measures the cost of government borrowing, rose to highs of 9.23% last week, before coming back to 8.92% in early trade on Tuesday. It settled at 8.90%.

At 11am, the rand was at R13.5527 to the dollar from R13.5499, R15.8224 to the euro from R15.8550 and R17.9756 to the pound from R17.9966. The euro was at $1.1673 from $1.1702.