Punch-drunk rand finds some footing

The rand has been battered back and forth by volatile global markets this year but appears to be finding some footing amid the uncertainty.

The local unit strengthened to close to R18.00 a dollar on Friday (7 March) before pulling back on Monday to around R18.25.

While the weaker posting means it is a stretch from the R18.00 resistance level, it is indicative of somewhat calmer markets.

According to Investec chief economist Annabel Bishop, markets are now factoring in a more certain path for rate cuts in the United States after US President Donald Trump’s chaotic start to his second term.

Trump started his term in February with a slew of executive orders that threw the establishment into disarray. Among his orders were threats of a looming tariff war with Canada, Mexico, China and the EU.

This sent markets into a spin, with alarm bells ringing for higher inflation.

Markets started reducing projections for US central bank interest rate cuts, with most anticipating one cut in 2025, near the end of the year.

However, Bishop noted that the US tariff fears, while still present, are more muted now, with markets understanding that Trump is using the threat of tariffs for posturing over policy.

“The pullback on the application of 25% tariffs on Mexico and Canada, reduced concerns around the effects on US inflation, aiding market expectations on further US interest rate cuts in the current cycle,” she said.

This has caused a reversal for interest rate expectations and the US dollar, which has strengthened as a result.

Markets are now anticipating three interest rate cuts for the US this year, and coming much sooner than previously expected.

This weakened the US dollar recently and supported the rand to levels last seen in November 2024, before the outcome of the US election.

“Indeed, the US dollar has dropped substantially this month, back to November levels, as the US also sees a milder tariff environment than initially feared, using tariffs to reinforce its foreign policy agenda, but with cognisance of economic effects,” Bishop said.

While this reversal in the markets has had a substantial effect on currencies, Bishop said that it also comes with some negative sentiment on the rise.

This is because the US is still engaging in a trade war and drawing several retaliations from partner countries—most notably Canada and Mexico—and there are deflation pressures emerging from China, with weak spending and low consumer confidence.

Bishop noted further that there are growing concerns about increased militarisation in the EU, which is now considering a nuclear arsenal and strengthening ties with allies after the US has begun withdrawing military support for Ukraine—while allies of Russia are also boosting arsenals and rhetoric.

Ultimately, the economist said that the rand is on course to average near R18.40/USD this quarter, warning that volatility remains the name of the game.

She said that the rand will continue to move in either direction quite rapidly thanks to the prevailing uncertainty in the wider global market, driven by the unpredictability of the United States.