Rand firms as Trump softens tone on China tariffs

The rand strengthened on Tuesday as markets responded to a more conciliatory tone from US President Donald Trump on trade relations with China.

This eased risk sentiment and boosted emerging-market currencies.

As of mid-afternoon, the local currency was stable at R17.35 having dropped to R17.20 this morning. That followed a one-month weakness of R17.50 around mid-month.

Andre Cilliers, currency strategist at TreasuryONE, said Trump’s comments had “lifted risk sentiment, pushing stock markets higher, and seeing a rally in risk-sensitive currencies like the rand.”

Despite a slightly stronger dollar, Cilliers noted earlier today that “the rand has firmed to R17.23 against the greenback, while also rallying against both the euro and pound”

Nolan Wapenaar, co-chief investment officer at Anchor, said “tensions between the US and China are flaring up again on the rare earth and tariff fronts.”

“This is probably to be expected in the context of the America First policies that President Trump has adopted. Importantly, the president has signalled that he does not want an all-out escalation with China again and that sensibility will prevail,” Wapenaar said.

“This will see volatility flare up from time to time. Markets have become numb to these flare-ups, and the impact isn’t what it was back when tariffs were first announced,” he said.

“Looking forward, we expect that this will settle down and the longer-term trend of a gradual recovery in the rand will be supported by the positive terms of trade for South Africa, the impending rate cuts in the US and the lower inflation differential between South Africa and the US.”

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Annabel Bishop, Investec chief economist, said on Monday that “US dollar volatility has seen the rand fluctuate recently, with markets influenced by the escalation in the trade war on additional protectionist threats from China and the US, with the US even warning of an end to importing some items from China”.

Bishop added that “the US has ratcheted up its warnings as China increased controls over its rare earth exports now requiring state approval for any amount leaving the country, no matter how small a quantity, with the US threatening 100% tariffs on top of the existing 55%”.

Bishop said, “the rand is likely to remain volatile, as the republican administration continues to follow a generally unpredictable trade path, although the typical pull backs on threats made has reduced market sensitivity somewhat compared to previously”.

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