Rand on edge as D-Day approaches

The South African rand was on edge on Monday (31 March) as markets await the arrival of the United States’ “liberation day” this week—the day the Trump administration launches tariff increases on friends and foe alike.

Global anxieties have mixed with local worries about the Government of National Unity (GNU) and its ability to pass the budget this week.

The latter concerns have simmered, but uncertainty over the looming tariff hikes has kept the rand under pressure.

At 15h00 on Monday, the rand was trading at R18.38 to the dollar, R19.87 to the Euro and R23.79 to the pound.

According to Investec chief economist Annabel Bishop, markets are preparing for a slew of new protectionist orders and tariffs coming out of Washington on Wednesday, 2 April, with around 15 countries being targetted.

Dubbed the “Dirty 15” by the Trump administration, the White House has singled these countries out for having substantial trade deficits with the United States.

South Africa is not included among the countries listed. The list includes: Canada, Mexico, China, Taiwan, Malaysia, Indonesia, Vietnam, South Korea, Japan, Thailand, India, Ireland, Germany, Italy, and Switzerland.

Washington has called for a comprehensive review of trade relations, pushing Trump’s “America first” policies and reciprocal tariffs to counter what it deems “unfair trade practices”.

Bishop noted that while Trump has threatened to extend tariffs without exceptions, US officials have signalled they may not be so broad and severe.

This has brought some easing to the US dollar, which has seen marked volatility.

The rand pulled back to R18.12/$ on Friday, supported by the Democratic Alliance and African National Congress’s progress toward an agreement on the Budget and other policies.

However, the rand was pushed weaker on Monday as the “liberation day” draws closer.

Citing Bloomberg analysis, Bishop said that if the additional trade measures are taken to the extreme, the shock to the US average tariff rate would be huge, lifting it from just under 2.5% to 35%.

The 15 countries on the hit list account for more than 75% of all US imports of goods and the entire deficit, she noted.

This would largely wipe out the benefits of globalisation this century and make any US interest rate cuts this year unlikely.

For South Africa, reciprocal tariffs would scupper the recent rand strength seen from January against the US dollar.

Meanwhile, no interest rate cuts in the United States would bring into question the Reserve Bank’s position on further cuts locally.

Bishop said that the situation remains highly uncertain, with markets not sure which way the Trump tariffs will go.

Tariff increases have been drip-fed so far but are now at risk of escalating in speed this week.

“Global financial markets prefer certainty. The trade war has been drawn out, and most likely will continue this year, keeping uncertainty for markets notable,” she said.

“President Trump said over the weekend that ‘you start with all countries, so let’s see what happens’ while also indicating the potential for allowances for some countries.”

“This is fuelling uncertainty even after this week’s rise in protectionism,” she said.

The rand is expected to average R18.50 against the dollar in the first quarter of 2025 (ending March), with the current projection that it will strengthen to an average of R18.15 in the second quarter.

This is highly dependent on the local and global economic trajectory, however. In a downside scenario, this could average R19.00 to the dollar. In an upside scenario, it could strengthen to R17.50/$.