'Under attack' rand loses 1.4% to Trump trade wars, strong dollar | Fin24
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'Under attack' rand loses 1.4% to Trump trade wars, strong dollar

Jul 11 2018 12:51

The rand lost 1.4% against the dollar by midday on Wednesday, as the trade war between US President Donald Trump and China over tariffs escalated. 

"The rand was under attack by sellers on Wednesday morning as escalating trade tensions fuelled risk aversion and soured appetite for riskier currencies," said Lukman Otunuga, a research analyst at FXTM, in a morning note.

"The rand’s sharp deprecation continues to highlight how the local currency and many other emerging market currencies remain heavily influenced by external factors."

At 12:44 the local currency was trading 1.18% weaker at R13.50 to the dollar, after opening the day at R13.33/$.

Otunuga said rand weakness was also caused, in part, by the stabilisation of the dollar.

The dollar index, which tracks the dollar's relative strength against a basket of currencies of its major trading partners, was 94.414 at 12:12 on Wednesday, up 0.27% on the day. 

"With investors potentially rushing to the dollar as a source of safety amid escalating trade tensions, further upside could be witnessed in the near term."

Otunuga said the fresh wave of risk aversion swept across financial markets after the United States threatened to impose tariffs on an extra $200bn worth of Chinese goods.

"This unfavourable move comes just days after the two countries slapped tit-for-tat tariffs on $34bn worth of each other’s imports. With Beijing describing the latest tariff threats as 'totally unacceptable' and vowing to fight back, concerns are likely to heighten over a full-scale trade war becoming a reality. '

Local impact 

Andre Botha of TreasuryONE said in a morning note that local news was also starting to impact on the rand.

"We saw the rand spike on the news that the unions dismissed Eskom's latest wage offer. It is the same case as the trade war: the longer the impasse, the greater the effect, in this case, on the local market."

Botha said if the rand were to break below R13.50/$ - which it did before noon - this would signal that "downward momentum has been lost and a run to R13.63/$ could not be out of the question". 

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rand  |  trade wars  |  markets  |  us-china trade war  |  currencies


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