This setback in the currency’s value, which had recently come close to breaking the R17/$1 barrier, was the result of what analysts stated was a knee-jerk reaction to Trump’s victory. Picture: Henk Kruger / Independent Newspapers.
Nicola Mawson
The rand plummeted to its lowest in two weeks yesterday as it weakened more than 2%, breaching R17.80-mark to the US dollar on risk aversion as votes being counted in the United States indicated that “Make America Great Again” crusader Donald Trump was set for a second term in the Oval Office.
This setback in the currency’s value, which had recently come close to breaking the R17/$1 barrier, was the result of what analysts stated was a knee-jerk reaction to the news that Trump had squeezed in as the next president ahead of Democratic candidate, Kamala Harris.
Nolan Wapenaar, Anchor Capital’s co-chief investment officer, noted that it had became apparent that Trump would likely be re-elected by the American public over the course of Tuesday night.
“This has gradually grown to be a Republican sweep of the House, the Senate and the Presidency,” he noted.
Anchor Capital holds the view that a Trump win will result in a stronger US dollar, which was evidenced by the 2% gain in the greenback and pressure on the rand as votes were counted while South Africans slept.
“Additionally, a Trump presidency is likely detrimental to the outlook for emerging markets, putting more pressure on the rand,” said Wapenaar.
Apart from the rand being knocked from R17.11 as of Tuesday to R17.74 by 4pm yesterday, its weakest since 23 October, Brent crude oil prices also fell by 2.8% to $73.40 (R1 302) per barrel as markets digested the news.
Ricardo Evangelista, senior analyst at ActivTrades, said Trump has campaigned on a protectionist platform, pledging to impose additional tariffs on all imports.
“If enacted, such policies are likely to drive inflation higher,” he said.
“In this context, it’s no surprise to see US Treasury yields rising and the dollar strengthening, as investors brace for a scenario in which the Federal Reserve may need to reinitiate its battle against inflation.”
André Botha, head of execution at TreasuryONE, said that the rand, along with other emerging market currencies, “has been riding the wave of volatility”.
“With no clear outline of the potential policies that Trump can introduce, we are in for a period of volatility, with every headline a possible event risk,” Botha added.
Old Mutual Group chief economist, Johann Els, noted that the quick slump in the rand was a “knee-jerk reaction,” pointing out that its too quick to judge how quickly Trump’s policies, such as trade protectionism, will be implemented.
“We need to watch this going forward. He’s going to take some time. He’s only starting his presidency in January next year,” Els said.
However, Els’ colleague Izak Odendaal, chief investment strategist at Old Mutual Wealth, said investors should expect more volatility based on Trump’s first term.
“Policies could change at short notice,” Odendaal said.
Trump’s win, however, pushed Bitcoin to an all-time high above $75 000 yesterday morning as it finally broke through the long-standing peak of $73 700.
Christo de Wit, Luno country manager, said “Trump has repeatedly and publicly vocalised his support for the development of the cryptocurrency industry in the US, whereas Harris has been less clear about plans for the industry’s future should she win the election”.
He added that Luno saw a significant uptick in trading volume while votes were counted in response to the positive market movements.
Meanwhile, the JSE All Share Index also by 1.5% to 85 340 points, mainly pressured by resource-linked sectors, especially precious metals miners, and financials as investors monitored US election results.
BUSINESS REPORT