Rand under pressure on Brexit worries, trade wars and Eskom
South Africa’s rand has come under pressure on Tuesday, as global tensions and politicking pushed investors out of riskier environments.
UK Prime Minister Theresa May on Monday called off a vote on her controversial Brexit deal, admitting that it would have failed by an overwhelming margin, again disrupting and delaying the nation’s already creeping struggle to divorce itself from the EU.
Tensions between the US and China meanwhile, have ramped up following the arrest of Chinese mobile firm Huawei’s CFO, and as the two nations again head to the negotiation table over trade tariffs.
The global issues pushed the rand to a high of R14.48 to the dollar overnight, before pulling back slighting in early trade. However, the currency remains at three month highs against the dollar, according to RMB.
“The tension in the market is palpable following the postponement of today’s Brexit vote by UK prime Minister May, leaving the markets in further disarray as the pound trades to a 20-month low,” said Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions.
“The turbulent terrain that both Brexit and the US-China trade tension has caused, places the entire emerging market on unequal footing as the sell-off prompted by investor risk aversion continues at full steam.”
While some gold, mining and manufacturing stats are due from the local economy today, the rand’s performance is currently being led by international markets, and what politicians in the US and UK are getting up to, she said.
The UK will release employment data and the US will follow suit with PPI data, but it all boils down to their politics.
“We can continue to expect a bumpy ride in the rand, although the set-back in the pound can add some relief during trade this morning,” Botes said.
The rand’s momentum is on the downside, she said, with a range of R14.25 to R14.45 on the cards for Tuesday.
“The rand had a tough time yesterday,” said Andre Botha, senior dealer at TreauryONE. “The reason for this dramatic sell-off ranges from trade tensions between the US and China to global growth concerns and locally the effect that load shedding will have on the economy and whether Eskom will have another bail-out, which will have potential credit rating after effects.
“The overall notion is that emerging markets are under a bit of pressure due to international events and the rand more so due to local factors and its dubious title of EM proxy currency, which means it’s on either end of the spectrum in times of EM volatility, either the weakest or the strongest depending on sentiment.”
At 10h00, the rand was trading at the following levels against the major currencies:
- Dollar/Rand: R14.45 (0.59%)
- Pound/Rand: R18.19 (0.85%)
- Euro/Rand: R16.44 (0.79%)
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