Nicola Mawson
The ever-volatile local currency eased 0.4% to R18.26 against the US dollar yesterday before recovering to R18.15/$1 in the afternoon, having been adversely affected by US President-elect Donald Trump’s forthright statements that he was determined to impose tariffs on items entering the US from Mexico, Canada and China, the US’ three largest trading partners.
Having come close to breaking the key R17/$1 barrier just two months ago on positive sentiment, which would push investors into more risky assets, as well as confidence in the Government of National Unity, slowing inflation, and lower interest rates, Trump’s election three weeks ago reversed gains.
The US Federal Reserve (Fed) has also turned bearish amid Trump’s threats to impose tariffs of up to 20% on imports, and 60% on Chinese goods. This has seen growing worries about the global agricultural trade, leaving investors concerned that South Africa’s membership of the African Growth and Opportunity Act could be adversely impacted.
German multinational financial services company Allianz stated in a report earlier this month that higher US tariffs could cost South Africa as much as $3.3 billion (R60bn) in trade with the US, under the baseline case of a fully fledged trade war.
As Anchor Capital co-chief investment officer Nolan Wapenaar told Business Report yesterday, “if the past is anything to go by, the return of Trump heralds the return of ‘policy by tweet’. This makes for a more volatile world where any tweet can suddenly be a major market moving event.”
Wapenaar said the recent truce in the war in the Middle-East was a good outcome, which would potentially lead to more stability in the region.
“As the threats to global oil supply reduce, we would expect oil prices to come down a little, somewhat independently of Trump,” he said.
The price of Brent crude oil fell below $73 per barrel yesterday ahead of the US Thanksgiving holiday and a focus on the upcoming OPEC+ meeting nexzt week where the group of oil-exporting countries is expected to consider postponing a planned production increase to address fears of an oversupply next year.
Wapenaar added that the Trump policies around tariffs have the world guessing.
“Most markets are assuming that we will see some tariffs in the first quarter of 2025. In particular, we expect that China will be the focus of the initial tariffs. This makes for a stronger dollar initially, while the promised tax cuts will likely see higher interest rates over time,” he said.
None of this, said Wapenaar, was good for the rand.
“We expect that the Trump Trade calms down early next year and that we see some recovery. For now, this is the new normal,” Wapenaar said.
Investec economist Lara Hodes said that a slowdown in growth in one of South Africa’s key trading partners, such as China, because of Trump's protectionist policies will affect demand and weigh on export potential, given that the rand is both an emerging market and a commodity currency.
Old Mutual Group chief economist, Johann Els, concurred that the rand will likely be more volatile over the next few months, adding that Trump’s policies will affect both currency and equity markets.
“I think that there will be lots of uncertainty. He will make lots of policy announcements, but he's not president yet. These policies will still have to be implemented,” Els said.
As a result, Els said the Fed has indicated it will wait until these policies have been implemented before modelling in their potential impact and reacting.
Els, however, indicated that the dollar may drift weaker in line with lower interest rates in the US. In addition, he said South Africa’s fundamentals were improving post the elections amid less political risk, a better outlook for economic growth, and more confidence from various stakeholders including consumers, businesses, and investors, all of which should lead to a more stable rand over time.
On the oil price, Els said it has remained fairly well contained given a slowing global economy, with less risk in the Middle-East also aiding in keeping it under control, which should help keep inflation in check.
BUSINESS REPORT