2 days ago
How US dollar strength impacts the South African rand amid trade deal uncertainty
President Cyril Ramaphosa shakes hands with his US counterpart Donald Trump during a visit to the White House in Washington DC earlier this year.
Image: AFP
The rand remains persistently weak against the US currency as time starts running out for South Africa to sign a trade deal amidst stronger economic indicators in the States.
Having hit R17.90 on Friday, threatening to breach a key R18 mark, the local currency lost another 5c against the greenback as of 7am on Monday before recovering somewhat in early morning trade to R17.87.
Weighing on the currency are several factors, including the fact that South Africa has yet to sign a trade deal with the Trump administration. While some other countries have been given a respite for the August 1 deadline when new export taxes come into effect, this does not extend to those that received official letters, including South Africa.
As of the beginning of next month, South Africa will face a 30% duty on all exports to the US, which accounts for some 7.7% of outbound trade to that country and could affect gross domestic product (GDP) by around 1.3%.
Euromonitor International's Trump Total Agenda scenario indicates that, in the event of a 30% US import tariff, real GDP growth could drop to 1% next year, down from a baseline forecast of 1.4%.
Andre Cilliers, currency strategist at TreasuryONE, noted that the dollar has continued to firm against other developed market currencies, such as the euro and pound.
Dollar remains firm in wake of inflation data and trade uncertainty
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'In the wake of trade uncertainty regarding tariffs and inflation data out later this week, the dollar's safe-haven status has re-emerged and benefited the greenback. What this has meant for the rand and other emerging markets is some backward trading, with the rand hovering below the R18.00 handle,' said Cilliers in a note.
Cilliers added that the rand continues to trade as one of the weaker emerging market (EM) currencies over the past week, with the local currency seemingly driven by some EM sell-off in the short term.
Investec chief economist, Annabel Bishop, noted that 'the rand has weakened as the US dollar recovered on the improved outlook for the US economy'. She added that South Africa is at risk of not being able to negotiate the reciprocal tariffs from the US lower as the US focuses heavily on foreign, and not only trade, policy.
On Friday, Cilliers had indicated that the rand saw some late Friday movement with the local currency breaking into the R17.90s. 'The direct cause remains difficult to pin-point, but some of the factors could be Cyril Ramaphosa scheduled to speak on Sunday regarding tariffs and other local concerns,' he added.
IOL could not find any mention of Ramaphosa addressing the nation on Sunday regarding tariffs. He did, however, respond to serious allegations linking Police Minister Senzo Mchunu to criminal activities over the weekend.
IOL
