Rand skids as US, China trade war flares

The rand continued to trade at six-month lows on Monday, skidding more than 1.7% to the US dollar as global developments continued to weigh on the local currency.

"The latest round of trade tariff retaliations between the US and China is dragging down emerging markets as investors return to the safety of the USD for now.

"How this trade spat plays out will remain unknown for now, keeping the market cautious," said TreasuryOne dealer Wichard Cilliers in a snap note.

By 16:47 the local unit was trading 1.74% weaker at R13.66 against the greenback.

Jameel Ahmad, currency strategist at FXTM, expects the rand to remain volatile this week, amid persistent concerns over the negative market impact emanating from resumed fears over a potential trade war between the US and China.

"This, alongside ongoing anxiety around the resurgence in investor demand towards the US dollar, is likely to present further downside risks for the rand," he said.

Ahmad warned that the rand might also face headwinds from the upcoming election next Sunday in Turkey.

"Volatility over the upcoming days might not be limited to just the Turkish Lira, but if the currency does take another nosedive in the run-up to the Presidential election, we are unable to rule out the likelihood that this could also play a role in reducing investor appetite towards other high-yielding assets."

Traders will also be watching local consumer inflation data due later this week for an indication of how the higher VAT rate, tariffs and fuel prices are impacting on consumers’ pockets, said Peregrine's Bianca Botes.

Bloomberg reports with OPEC clashing over output, Turkish elections looming and the likelihood of fallout from Argentina’s foreign-exchange crisis continuing, the prospect of a protracted trade war between the world’s two biggest economies merely served to cast a longer pall over emerging markets.

Trade wars "have the potential to disrupt an otherwise positive economic outlook, if they were to trigger broad-based retaliatory actions," Silvia Dall’Angelo, a London-based senior economist at Hermes Investment Management, told Bloomberg.

"The uncertainty concerning trade policies has the potential to negatively affect confidence, in turn holding back investment decisions."

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