How the Rand's pressure mounts ahead of key interest rate decision and US trade deadline

The South African Reserve Bank’s interest rate decision on Thursday comes at a critical moment, just one day before South Africa’s deadline to secure a trade deal with the US expires.

Failure to reach an agreement could add 30% to the cost of exports to America, threatening thousands of jobs and weighing on economic growth, while the rand trades weaker near R17.90 against the dollar amid mounting uncertainty.

Andre Cilliers, currency strategist at TreasuryONE, added that the rand is trading weaker around the R17.90 level as the rally in the dollar and the lack of any good news on the tariff front ahead of Friday's deadline weigh on the local currency.

In Investec chief economist Annabel Bishop’s weaky rand note, she said that the pending deadline to strike a deal with the US – with South Africa seemingly have not made progress – would be negative for the local currency.

The trade tax order, signed by US President Donald Trump on July 7, follows a suspension of his April 2 “Liberation Day” tariffs, which he placed on pause following an extremely negative market reaction in America. 

The US dollar has risen on the optimism around the progress ahead of the deadline on Friday, which the US’s Commerce Secretary Lutnick said will not be extended, and countries which have not struck deals will see July’s reciprocal tariffs apply, said Bishop.

Nolan Wapenaar, co-chief investment officer at Anchor Capital, said It seems certain that South Africa isn’t going to have a deal with the US by Friday. “I expect that everyone is aware of this by now and there I don’t expect a massive impact as we move into August,” he noted.

More likely the loss of export revenue will weight on the trade balance adding negative pressure to the rand over time, said Wapenaar. “Most industries won’t really notice, while a handful of sectors, like auto manufacture, will suffer a significant impact,” he said.

Wapenaar added that this will translate into job losses and economic losses in a few sectors. “Economists are all modelling to estimate the impact and, from what I am seeing, this will shave about 0.7% off economic growth. Just not nice,” he said.

In 2023, South African exports to the US accounted for around 2.2% of gross domestic product, while around 426,000 of jobs are linked to exports to the US.

On the back of both the US Federal Reserve and the South African Reserve Bank announcements on interest rates this week, TreasuryONE expects the rand to remain vulnerable to dollar moves. “However, a break above the R18.00 is likely to attract exporter inflows,” he said.

Bishop also noted that the local currency had weakened on a likely interest rate cut in this week.

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