The rand targeted a move back through R14 against the dollar on Tuesday as US president Donald Trump threatened new tariffs on $200 billion in China imports, hurting emerging markets amid weakening investor confidence.<\/p>\n
The local currency lost as much as 2% in early trade against the dollar, trading at a six and a half month low. It also lost further ground against the euro and the pound.<\/p>\n
Reuters noted that the rand has surrendered all of its gains made following the appointment of Cyril Ramaphosa as ANC president, in December.<\/p>\n
Bloomberg reported that markets have ushered in a new wave of risk aversion as the war of words on trade between the world\u2019s two-largest economies escalated – just as the Federal Reserve this month signaled a faster pace of policy tightening, and the European Central Bank said it will maintain its key rate until the second half of next year.<\/p>\n
China said it will hit back if the US rolls out new tariffs, in response to Trump saying he has directed the US Trade Representative to identify $200 billion worth of China goods for additional tariffs.<\/p>\n
\u201cWill it escalate from here? We\u2019d certainly hope not, but it\u2019s certainly a risk,\u201d Craig Vardy, head of fixed income in Australia for BlackRock Inc, said in an interview with Bloomberg. \u201cThe numbers we think at the moment are pretty small. These are just warning shots going across the bows as some of these countries try and correct some of the trading numbers.\u201d<\/p>\n
On the local front, South Africa continues to battle a stagnant economy, and its ailing state owned entities, the latest being Eskom which has struggled to keep the lights on amid a wage strike.<\/p>\n
“We have seen the rand weaken quite significantly in the past week and the reason for this move is not as clear-cut as is usually the case. It is a fact that the market is currently trading in a risk-off phase, but there is nothing to justify the 1.2% difference between the rand and the next weakest emerging market. Nothing is fundamentally different in South Africa, and the issue at Eskom is temporary and should not have a significant impact,” said Andre Botha, a senior currency dealer at TreasuryONE.<\/p>\n
“Another factor that has caused havoc in the market is the US-China “trade war” that has come into play again. Both sides have set firm tariffs against one another, and the market is concerned about the global growth impact that this toing and froing of “trade wars” will have. Some of this concern has washed into EM currencies, and thus we have seen a further bout of EM weakness about this,” Botha added.<\/p>\n
“We still believe that the rand is overdone at these levels and should the tide turn and risk-taking behaviour start taking precedent again the rand could stage a comeback. The move will be driven by off-shore events as local factors will have a negligible effect on the rand except if the data misses expectation badly.<\/p>\n
“Today we have no significant data out which means that the rand will be caught up in the sentiment of the market. This creates the distinct possibility that a run to R14.00 is on the cards,” the dealer said.<\/p>\n