JOHANNESBURG - THE RAND DIPPED below R16 to the dollar yesterday as a possible Democrat victory in the US presidential election buoyed investors to bet on riskier assets.
However, uncertainty soon took hold after President Donald Trump hinted at a possible Supreme Court challenge of the count as Joe Biden trailed him.
With a number of key state results remaining undeclared by 5pm SA time, the rand retreated back to R16.02 to the dollar after having weakened to R16.43 during intra-day trade.
The rand has been battered by external factors this year, including the Covid-19 pandemic, oil price fluctuations, deepening recession, ratings downgrades, and a potential sovereign debt crisis.
Peregrine’s Bianca Botes said a sustained break below R16 to the dollar would open the door for the next big technical level of R15.75.
Botes said a Biden win would most likely bring some stability versus the erratic behaviour of the Trump administration, and as a result support riskier assets.
“In the near term, however, we can look to more volatility until the election result is confirmed and certainly there will be greater instability to come if the election is contested by Trump,” Botes said.
The stock market was in turmoil following two consecutive days of gains as no clear picture of the nail-biting election outcome had emerged.
The JSE All Share Index rose 0.88 percent to 53 656 points while the Top40 Index surged 0.92 percent to 49 300 points.
The mining index, however, fell 1.38 percent to 47 746 points while the banks index eased 0.32 percent to 5 605 points. General retailers inched 1.06 percent higher to 4 002 points.
Schroders’ chief economist Keith Wade said the markets had begun reining in their growth expectations as hopes of Democrat winning the Senate were fading.
Wade said there was now the prospect of a continuation of the status quo, with a Trump presidency and divided Congress.
“This is an outcome which would see less stimulus and the re-ignition of the trade wars, factors which would limit growth,” Wade said.
“For now, no clear result is probably the worst possible outcome from an economic perspective as uncertainty increases and stimulus hopes fade.”
Estimates had suggested that a stimulus package of between $2 trillion (about R32trln) and $3trln could have been worth an extra 1 percentage point of growth in the US next year.
The markets were hoping that a Biden win would most likely bring some stability versus the erratic behaviour of the Trump administration.
Old Mutual’s Johann Els said Trump’s re-election should see increased market stability and a stronger rand off the back of the likelihood of a weaker dollar combined with a dovish Federal Reserve.
Els said a divided Congress would, however, make this fiscal package challenging to approve.
“A Trump victory shouldn’t have an adverse effect on our local economy,” Els said.
“A more positive global growth environment will be supportive for South Africa’s growth, but keeping South Africa out of a debt trap will need more significant policy reform and actual implementation of the government’s plans.”
BUSINESS REPORT ONLINE