War talk knocks rand over R13.40/$

Cape Town - The rand was on the back foot on Tuesday, weakening to over R13.40/$, as the continued war of words between North Korea and the US triggered a flight to safety among investors.

Comments from North Korea’s foreign minister Ri Yong Ho sent gold above $1 310 as US 10-year treasury yields declined four basis points, said Hussein Sayed, chief market strategist at FXTM, in an emailed market commentary.

Ho had accused the US of declaring war, and said North Korea had every right to take countermeasures, including the right to shoot down US strategic bombers even when they were not inside the airspace border of his country.

This war of words was sparked by a late night tweet from US President Donald Trump, who said the North Korea's leaders “won’t be around for much longer”.

Earlier he had warned that the US could “totally destroy” North Korea.

Sayed however said however, that "so far, every aggressive selloff in equities and move to safe havens on geopolitical risks, has proven to be short-lived".

TreasuryOne said that, as South Africans enjoyed a long weekend celebrating Heritage Day, global headlines were full of flurry of crisis-ridden bulletins. 

As a result haven assets such as gold and the yen rallied, while stocks and risk assets retreated.

"The rally in the yen is confusing though, as their proximity to North Korea and stance in favour of the US puts them at direct risk," said TreasuryOne.

The rand, which managed to rally on Friday as markets continued to favour the SARB Monetary Policy Committee's decision to leave rates steady, has now succumbed to profit-taking as investors become cautious.

"We expect international sentiment to continue to dominate the trade in the ZAR," cautioned TreasuryOne.

By 18:58 the local unit was trading at R13.39 to the greenback after weakening to R13.43 from an intra-day high of R13.27/$.

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