These two countries could pose more risk for the rand than China and the USA

·11 Apr 2018

While China and the USA’s trade tariffs continue to dominate global economics, there are other international risk factors which may be more immediately apparent to the rand.

According to Andre Botha, senior currency dealer from TreasuryONE, the USA’s announcement that it plans to place sanctions on Russia and the meltdown currently facing Turkey should also be considered as to whether the rand weakens or strengthens over the short-term.

“The US imposed sanctions on Russia and these sanctions had hit the financial markets hard in Russia with the stock market down by 8.3% yesterday,” said Botha.

“This will bring in fresh risk aversion – not only to the Russian market, but the potential contagion effect to other emerging markets (EMs) cannot be discounted. This along with the Turkey interest rate stand-off between the Prime Minister and the Central Bank does not bode well for EMs in the short term,” he said.

Despite these issues, Botha noted that the rand has held up surprisingly well against this backdrop, partly due to the carry trade attractiveness of the rand.

“But saying that, it does not take a lot for the rand to join the other EMs in faltering,” he said.

“The longer the Russian and Turkey headlines are still doing the rounds, the more risk-averse the EM market will become.”

On Wednesday (11 April), Botha said that he would be keeping an eye on Russia and Turkey, as the US is set to release its CPI print.

“The inflation print is critical as this will determine the direction the US Fed will lean towards when it decides on the hiking cycle of their interest rates,” he said.

“Should inflation print better than expected we could see US dollar on the front foot and vice versa. Also, keep an eye out for the Fed minutes this evening which could impact the market if the market can sense the mindset of the Fed going forward concerning their interest rate.”

At 10h00 in Johannesburg, the rand was trading at the following levels against the major currencies: