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Rand firms in morning trade despite Trump tariff uncertainty

Jul 12 2018 12:46

The rand gained 0.55% against the dollar by on Thursday morning, showing some resilience despite ongoing international trade tensions between the US and China over tariffs. 

By 12:31, the local currency was trading at R13:46/$, after opening at R13.54 to the greenback. 

Wichard Cilliers, director and head of dealing at TreasuryONE, told Fin24 that manufacturing production growth continued to accelerate in May, rising from 1.0% y/y in April to 2.3% in May.

"The print surprised to the topside with consensus looking for a contraction of 0.6%. This has helped the rand trade a little stronger, he said. 

On Wednesday, the rand had fallen from the R13.30/$ level to hit R13.57 overnight.

According to Andre Botha, senior currency dealer at TreasuryOne, while the rand tends to weaken on global uncertainty it was showing resilience around the "sticky' level of R13.50/$. 

Botha added that as emerging markets are usually "joined at the hip", recent bad news in Turkey - where the lira reached its weakest ever rate against the dollar on Wednesday - could reasonably have been expected to have impacted the South African market.

"The fact that this is not the case confirms that the market is looking at the lira issue as country-specific and not as a broad-based EM problem," said Botha.

Risk appetite

"We saw a couple of days ago that there is still some risk-appetite out there for risky assets, when the rand rallied to R13.25/$. Should the latest trade war drama play out, we can expect the rand to start driving lower, but for the moment expect the rand to trade within ranges as we await news from abroad," he said. 

Mpho Tsebe, an economist at Rand Merchant Bank, pointed out that global equity markets, the rand and other EM currencies suffered losses as trade tensions between the world’s two largest economies, China and the US, escalated.

"China has indicated that it plans to retaliate against the US’s latest threatened 10% tariffs on $200bn of its exports to the US – calling Trump’s move 'typical bullying'."

China imports about $130bn worth of goods from the US, while the US imports $505bn in goods from China annually.

"This limits the extent to which China can go toe-to-toe with the US on trade tariffs," said Tsebe.

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rand  |  emerging markets  |  dollar  |  markets  |  currencies
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