Rand takes a beating
The rand continues to be flung around by external factors, the most prevalent of which is the imposition of a 30% tariff on exports to the United States.
After hitting as high as R18.35 to the dollar after the tariffs were confirmed on Friday, the rand pulled back to around the R18.00/$ level on Monday.
According to Investec chief economist Annabel Bishop, this is not due to any inherent strength in the rand itself, but rather the dollar weakening in the face of poor US jobs data also published on Friday.
US unemployment rate rose to 4.2% from 4.1% which was expected, while average hourly earnings rose above expectations, along with average weekly hours, she said.
However, it was the 74,000 drop in non-farm new employment which shook markets and caused the dollar to falter, boosting the rand.
The rand, therefore, is trading on the whims of US markets, with Bishop warning that the impact of the 30% tariff will still be felt when the tariffs take effect on 7 August.
While US President Donald Trump signed the executive order setting the tariffs late on the 31st of July (US time), the order stated that the tariffs will take effect seven days after the signing.
That puts the effective date as 7 August.
Bishop noted that the US has imposed a 25% tariff on automobiles since April, and a sharp drop in these exports to the US has already been recorded (an 87% drop).
The effects of this tariff have already come through on the rand, which had been trading close to R17.00/$ before the tariff and budget drama of April 2025 kicked in.
However, the 30% tariff will add to the 25% tariff on autos and also hit other qualifying export goods later this week.
A positive consideration on the situation is that the effective tariff hike will only be 20 percentage points, as exports have already been subject to a 10% universal tariff since April.
Additionally, certain metals and minerals will see no tariff application, which will spare some key industries from the coming pain.
Kicking South Africa where it hurts
However, these “positives” do not remove the fact that South Africa will be hit hard, with Bishop warning that 0.2 percentage points could be wiped from South Africa’s GDP growth.
With the country only on track for around 1% growth in 2025, the tariffs could very likely pull the country below that point. South Africa’s economic growth has been stagnant for more than a decade.
Bishop said that “final negotiations” would be key.
If South Africa can negotiate a slightly better position while also increasing access to other markets and resolving local blockages in freight, the impact could be softened to between 0.1 and 0.2 percentage points.
The South African government has outlined a list of planned interventions to protect South Africa from the tariffs, but put negotiation with the United States at the top of its agenda.
However, many of the stumbling blocks in negotiations are political in nature—such as the US taking exception to policies like Black Economic Empowerment and land expropriation—not necessarily trade-related.
This makes it unlikely that South Africa will be able to meet the Trump administration’s demands, and the pressure on local industries and markets will continue.
According to Investec’s scenario modelling, the rand will likely stick around the R18.00/$ mark in the third quarter, dropping to about R17.90/$ on average in the final months of the year.
If conditions deteriorate (32% chance), the rand could test new highs against the dollar and march over R19.00/$ by the end of September, and push R20.00/$ before the end of the year.
However, if things improve (15% chance), the rand could head back toward R17.00/$ and even push below these levels by year-end.
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