Rand takes a hit from global tensions, trade war and Brexit concern
The currency traded in a tight range on Wednesday, touching R14.94 to the dollar overnight and dipping to R15.02 by mid-afternoon as world trade tensions intensified.
In a speech at the annual UN General Assembly in New York, US President Donald Trump criticised China's trade practices and said he would not accept a “bad deal” in the ongoing negotiations between the powers.
China reiterated by saying it had no intention to “play the Game of Thrones on the world stage”, but warned Washington to respect its sovereignty, including in Hong Kong.
However, most of the implied volatility in the market came from current Iran-Saudi Arabia-US relations, as some heated talks are expected to continue around sanctions. This, coupled with the recent extreme movements in oil, strengthened the dollar against emerging markets such as the rand.
“Most of the factors affecting the rand are global. There is the uncertainty in the UK's political events, there is reasonable probability that US President Donald Trump faces an impeachment in the near term,” noted Anchor Capital fund manager Nolan Wapenaar.
He said the recovery of the rand in recent times had been due to a cooling-down of tensions between the US and China, but that “the Trump allegations and China tensions have rekindled fears the trade war may drag on.”
Bianca Botes, a treasury Partner at Peregrine Treasury Solutions, said the looming banking strike in the local market was having a minimal impact on the rand, but that its weakening was largely driven by global risk-off sentiment.
She said the announcement that the House of Representatives would launch a formal impeachment inquiry against Trump was eroding global market sentiment, though impeachment had hung over Trump his entire term thus far and to date he had survived the storm.
“The true test will lie in who his proposed successor will be, as well as the policies that the ruling party will adopt and what that will mean for global trade,” she said.
Deutsche Bank analyst Christian Wietoska was more optimistic, pointing out that the positioning by foreigners in the local bond market was light and well below the long-term average for the year to date.