Donald Trump assassination attempt – what it means for the rand
The rand was knocked off its firmer footing at the start of this week following a surge in the dollar.
The US dollar rallied in markets after an assassination attempt against former president and current Republican candidate Donald Trump at a rally at the weekend.
According to Bianca Botes, Director at Citadel Global, the rally is indicative of markets betting that Trump will win a second term as president of the United States, while also reflecting risk-aversion in the markets amid heightened security fears.
Investec chief economist Annabel Bishop said that the dollar’s rally will likely be short-lived and that the rand should again pick up steam as market risk aversion works its way out of the system.
The rand has been strengthening since the end of April, reaching R17.95/USD at the end of last week. However, by late trad on Monday (15 July), the local unit had weakened 1.5% to R18.25.
“The rand could see some strength later this week as the risk aversion works its way out of the system, with the US FBI reported as having said there is no further safety threat currently seen and the shooter appears to have acted alone,” she said.
Risk aversions in global financial markets tend to see a sell-off of emerging market portfolio assets (bonds and equities) and risky assets such as equities in advanced economies, weakening EM currencies—hence the rand’s stumble.
“With the US shooting seen to be an isolated instance so far, risk aversion is expected to wane over the course of this week, with the rand pulling back towards R18.00/USD, although dependent on global financial markets and data,” Bishop said.
In an address following the shooting, Democratic candidate and incumbent President Joe Biden warned that the motive of the shooter was not known and called for calm.
“We don’t know his opinions or affiliations. We don’t know whether he had help or support or if he communicated with anyone else.”
“The political rhetoric in this country has gotten very heated. It’s time to cool it down. And we all have a responsibility to do that. Yes, we have deeply felt, strong disagreements. The stakes in this election are enormously high.”
“But in America, we resolve our differences at the ballot box. You know, that’s how we do it, at the ballot box, not with bullets. The power to change America should always rest in the hands of the people, not in the hands of a would-be assassin.”
Other factors at play
If markets calm following the attempt on Trump’s life, the focus will again pull to wider economic factors—most notably the long-awaited turn on interest rates.
While no interest rate cut is widely expected to occur in the US this month, markets will scrutinise FOMC commentary for an indication of whether the first US rate cut will occur in September or November, with the former likely prompting rand strength, Bishop said.
The rand so far has averaged R18.22/USD this month, with Q3.24 still expected to see the quarter average R18.00/USD, although much will depend on the FOMC communication, she said.
The South Africa Reserve Bank most recently indicated it is only likely to cut interest rates next year.
However, Bishop said this could be good for the rand.
While a quicker inflation descent than the SARB forecasts could bring the first cut into an earlier period, a delay in interest rate cuts in South Africa, and a quickening in the start of the US interest rate cutting cycle would widen the differential between South African and US interest rates, which would add to rand strength.
Therefore, outside of market shocks, eyes will be on other data emanating from the United States, which could prove either supportive of a sooner US interest rate cut, neutral, or indictive that the Fed might delay its cut cycle.
[Image: Bloomberg]
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