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Rand remains vulnerable amid trade and global growth jitters

Oct 30 2018 11:04

While it firmed on Tuesday morning, the rand and other emerging market currencies remain vulnerable amid a speculative report that the US is preparing to hit China with fresh tariffs on consumer goods.

The local currency opened at R14.72/$ and was changing hands at R14.64/$ at 10:55, 0.54% stronger. 

Bloomberg News reported on Monday that President Donal Trump’s administration was preparing to announce tariffs on all remaining Chinese imports amounting to $257bn if trade discussions next month fail. The US has already imposed tariffs on $250bn of Chinese goods, while China responded by imposing retaliatory tariffs on $110bn of US goods.

"The latest round of tariffs, if imposed, would affect consumer goods, would weigh on growth in the world’s two largest economies. This, in turn, would impact global growth – a negative for emerging market economies," said Mpho Tsebe, an economist in global markets research at Rand Merchant Bank.

"With trade tensions making a comeback, the rand and other EM currencies are likely to remain vulnerable to risk sentiment," she said.

In Asia, however, stock markets reversed earlier losses after President Donald Trump said he believed he can "make a great deal with China", easing anxiety over economic growth amid an escalating trade war.


Andre Botha, a senior dealer at TreasuryONE, said sentiment is fickle at the moment, and any negative emerging market news could be the catalyst for emerging market currencies to weaken. 

"The rand is not the only EM currency that was under strain with the Mexican peso and the Brazilian real 3.5% and 3.1% down respectively. The selloff in the other emerging markets also had a negative impact on the rand and caused the reaction to be exaggerated."

"This leads us to believe that the rand will be volatile for the remainder of the year and strongly influenced by reaction in the US dollar and local politics and rating agencies.”

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