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Trumpeconomics and emerging markets: rand roller coaster to persist in 2019

Jan 09 2019 11:11
Khulekani Magubane, Fin24

The rand is set for a third straight year of currency turbulence in 2019 with a number of global economic uncertainties perpetuating the volatility, according to corporate treasury manager at Peregrine Treasury Solutions, Bianca Botes.

Botes noted that the rand has had a bumpy ride as far back as 2017.

Turbulent times

She said while local events such as the shock removal of finance ministers and former ANC president Jacob Zuma being replaced by President Cyril Ramaphosa caused volatility in 2017, the US-China trade dispute and Brexit made the ride even bumpier in 2018.

In a statement, Botes said volatility from the US-China trade war, the appointment of Ramaphosa as the country's president, two new finance ministers and the emerging market rout continued to take their toll on the rand.

"Few currencies matched the rand’s turbulence in 2017, with factors such as Trumpenomics, the firing of finance minister Pravin Gordhan and the appointment of Cyril Ramaphosa as ANC president, contributing to the R2.04 price swing during the year," said Botes.

US-China trade spat

Botes said in a climate where the trade war between US President Donald Trump and Chinese President Xi Jinping continues, the biggest rand performance constraint has been sentiment. 

She said as long as investors opt for safer investment destinations, emerging markets will continue to bear the brunt of negative sentiment and risk-off strategies.

"On the global front, while the trade spat between the US and China, with tit-for-tat tariffs, could be resolved early in the year, it could equally drag on for months if presidents Trump and Xi can’t settle their differences in an amicable, mutually beneficial manner," Botes said.

The trade meeting between Trump and Xi has since concluded and a statement is expected soon.

Brexit

She said the UK's expected exit from the European Union by the end of March and a further declining global growth will weigh heavily on all emerging markets and currencies.

SA Elections

"Locally, elections are due to take place in May and the political manoeuvring and uncertainty in the lead-up is certain to make some waves. In addition, the stagnating local economy is struggling to secure foreign direct investment as well as local fixed capital formation," she said.

Botes said a more volatile rand does not automatically imply a weak local currency and South Africa is more likely to see a modestly strengthening or a mildly weakening currency, than either of the more extreme scenarios of emerging economies, such as Venezuela.

rand  |  emerging markets  |  trump  |  markets live  |  currencies
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