Rand firms on election results, but will take its cue from US-China trade war | Fin24
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Rand firms on election results, but will take its cue from US-China trade war

May 13 2019 08:44

The rand will likely continue to take its cue largely from the US-China trade war this week and not the election results, as talks between the world's two largest economies remain deadlocked over tariffs, according to analysts.   

"In spite of last week’s election and a perceived investor-friendly outcome, the rand has been largely driven by international factors with the election contributing only marginally to its direction," said Bianca Botes of Peregrine Treasury Solutions in an update to clients on Monday morning.

The local currency, which strengthened on Friday, lost some ground on Monday morning.

At 08:15 it was changing hands at R14.24 to the greenback.

Analysts have predicted that the rand may start to strengthen after the ANC won its six consecutive general election with 57.5% on the vote. This gives the ruling party a clear majority in the National Assembly.

"The [election] outcome brings policy certainty back into the market which, coupled with the notion that no coalition government will be formed, will inject some positivity for the rand which could help [it] break lower and maybe test the R14.00 level," said Andre Botha, Senior Dealer at TreasuryONE, in a note to clients. 

But international events have introduced risk into foreign exchange markets. 

"[...] There are opposite forces currently in the market, with the market waiting for Chinese retaliation after the US imposed a fresh round of tariffs on the Chinese," said Botha. "The breakdown in the current trade talks leave a void which can only be filled by uncertainty, which could make the current rand strength short in duration." 

The stalemate in talks between Washington and Beijing could mean that emerging market currencies, such as the rand, suffer. 

"One thing has become clear over the past days and weeks: that quite a lot can go wrong in this negotiating process," said Commerzbank in note.  "Moreover the most impressive current news flow consists of the US President’s tweets. And if one reads those, one is overcome by concerns that the moment when all bridges have been burned and constructive talks are no longer possible, cannot be far off." 

Find everything you need to know about the 2019 National and Provincial Government Elections at our News24 Elections site, including the latest news and detailed, interactive maps for how South Africa has voted over the past 3 elections. Make sure your News24 app is updated to access all our elections coverage in one place. 

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