Trump's trade war could hit rand through oil price | Fin24
In partnership with
  • Ace vs. SA Reserve Bank

    The ANC secretary general has again weighed in on the central bank's mandate.

  • Mandela Day

    Nationalisation, privatisation and land: What Mandela told business in 1990 still resonates today.

  • Fin24’s newsletter

    Sign up to receive Fin24's top news in your inbox every morning.


Trump's trade war could hit rand through oil price

Apr 05 2018 07:59
Colleen Goko, Bloomberg

Johannesburg - The path ahead looks challenging for the rand if oil prices are anything to go by.

Concern that US President Donald Trump’s measures will trigger a trade war may hamper global growth and weaken demand for oil, according to Nedbank technical analyst Mehul Daya.

“Oil leads the rand,” said Daya. “Sixty percent of the movement in the rand can be explained by changes in the oil price since 1990.

”Talk of tit-for-tat tariffs" has already affected the rand.

The currency led emerging-market losses on Wednesday and was down 0.21% at 07:54 at R11.90/$ on Thursday morning.

The yield on rand-denominated bonds due December 2026 jumped seven basis points to 8.09%. Johannesburg’s equity benchmark tumbled 2.3% as escalating tensions between the US and China dragged emerging markets lower. It eventually closed 0.48% weaker.

“It’s all due to those trade wars and a lot of uncertainty,” said Marius Grobler, a trader at Unum Capital. “Investors are seeing a lot of fear on the market.”

Since 2016, oil has recovered from about $28 to $68 a barrel. This supported rand strength against the dollar from a level of above 16 per US dollar to the current spot price of under 12, according to Nedbank.

“The current oil price implies a fair value for the rand of 11.70/$, which is very close to where we are currently trading,” Nedbank analysts Daya and Walter de Wet wrote in a note to clients.

Investor expectation for lower oil prices may weaken the South African currency by as much as 5.9%, they said.

“Notably using these forecasts implies that the fair value for USDZAR will likely be in the range of 12.22 and 12.44 over the next two quarters.”

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

nedbank  |  rand  |  markets  |  currencies


Company Snapshot

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

FaceApp has been at the centre of a debate on data security. What is your view?

Previous results · Suggest a vote