Trump’s trade war could push the rand above R12 to the dollar

The path ahead looks challenging for South Africa’s rand, if oil prices are anything to go by.

Concern that US President Donald Trump’s measures will trigger a trade war may hamper global growth and weaken demand for oil, according to Nedbank technical analyst Mehul Daya.

“Oil leads the rand,” said Daya. “60% of the movement in the rand can be explained by changes in the oil price since 1990.”

Talk of tit-for-tat tariffs has already affected the rand. The South African currency led emerging-market losses Wednesday and was down 0.8% to 11.90 per US dollar as of 14:43 in Johannesburg.

The yield on rand-denominated bonds due December 2026 jumped seven basis points to 8.09%. Johannesburg’s equity benchmark tumbled 2.3% as escalating tensions between the U.S. and China dragged emerging markets lower.

“It’s all due to those trade wars and a lot of uncertainty,” said Marius Grobler, a trader at Unum Capital. “Investors are seeing a lot of fear on the market.”

Since 2016, oil has recovered from about $28 to $68 a barrel. This supported rand strength against the dollar from a level of above R16 per US dollar to the current spot price of under R12, according to Nedbank.

“The current oil price implies a fair value for the rand of 11.70 against the US dollar, which is very close to where we are currently trading,” Nedbank analysts Daya and Walter de Wet wrote in a note to clients.

Investor expectation for lower oil prices may weaken the South African currency by as much as 5.9%, they said.

“Notably, using these forecasts implies that the fair value for dollar/rand will likely be in the range of R12.22 and R12.44 over the next two quarters.”

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Trump’s trade war could push the rand above R12 to the dollar