Bad to worse for the rand in South Africa
After breaking through R18 to the dollar earlier this week, the rand has continued to crumble in the face of a stronger dollar, now heading towards R18.30/$.
The rand was trading at R18.29 to the dollar by 11h30 on Thursday (14 November), as traders increased bets against the bond market, expecting that US president-elect Donald Trump’s proposed policies will drive up inflation and keep US interest rates high.
Trump’s return to the presidency has been a tumultuous time for emerging markets as investors start pinning their forecasts on a fresh tariff war with China and other economic policies that could stoke inflation.
While the US election outcome did not have an impact on the US Fed’s November rate cut—a 25 basis point cut came soon after the election results, in line with expectations—traders are hitting the brakes on future expectations.
According to Citadel Global director Bianca Botes, traders now foresee only two US rate cuts by June 2025, down from nearly four anticipated just a week ago.
“US data, due out on Thursday, is expected to show a 0.2% rise in the consumer price index, reinforcing inflation concerns,” she said.
As a result, the rand is tracking other market reaction to the new reality, and “finds itself in treacherous terrain”, Botes said.
Trump won the US election in a landslide, winning all seven battleground swing states, the electoral college and the popular vote. The Republicans scored a clean sweep of the election, winning the presidential election, the senate and the House of Representatives.
Trump’s economic priorities focus on putting “America First”, with loyalists earning top positions in his government.
Local economists have generally characterised this as a negative for South Africa.
Botes warned that Trump’s victory is leading markets into a “new era of uncertainty”, which raises several trouble areas for South Africa, including, but not limited to rand weakness and influence on local interest rates.
Old Mutual Wealth Investment Strategist Izak Odendaal is more cautious in his assessment, noting that while uncertainty is part of the Trump package, it will still take some time to manifest.
According to Deryck Janse Van Rensburg from Anchor Securities, Trump’s victory has been negative for emerging markets with further headwinds headwinds expected for South Africa.
Other economists are also looking inward, noting that not everything can simply be pinned on Trump.
David Shapiro from Sasfin Securities said the promise of the government of national unity (GNU) and a more stable electricity supply has not yet materialised.
“The share prices of many South African stocks ran ahead of the results. There is a lot of re-thinking,” Shapiro said.
He also argued that China is one of South Africa’s biggest hurdles. “China is not kicking in. It is becoming a worry,” he said.
Commodity prices illustrate China’s lacklustre performance. “Oil prices are weak, palladium and platinum prices are below $1,000, and copper is not going anywhere,” he said.
Shapiro added that after the South African elections, many commentators predicted the rand could strengthen to R16.50 to the US dollar.
It was partly based on the United States lowering interest rates and making other countries, like South Africa, more attractive. This has not happened.
Instead, Shapiro said that the levels seen around R17.00 to the dollar are likely the best we will see.
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