Rand stabilises at R18/$1 as looming US tariffs raise economic concerns

The rand stabilised around R18.00 to the US dollar on Monday following a turbulent weekend when it fell to its lowest level in three months at R18.36/$1 on Friday. 

The volatility came after investors assessed the grim implications of potential higher tariffs on South African exports to the United States, a move that could significantly impact the nation’s economy.

The looming 30% tariff on South African goods—scheduled to take effect on August 7—has raised concerns over the viability of a number of critical export sectors.

With US imports including an array of products such as cars, iron, steel goods, wine, and citrus fruits, the ramifications of this tariff could reverberate through multiple layers of the South African economy.

The US ranks as South Africa’s second-largest bilateral trading partner, following China.

However, the rand strengthened by 1.05% to R19.97/$1 by 09h15 before stabilising around R18.02/$1 in the afternoon, R20.84/€1 and R23.96/£1. 

It comes after the SA Reserve Bank cut its benchmark interest rate by another 25 basis points to 7.00% on Thursday, mainly reflecting concerns about the potential adverse impact of US tariffs on the struggling economy. 

Governor Lesetja Kganyago also said the Monetary Policy Committee (MPC) will now aim for inflation expectations to settle at the bottom of its target range, 3%.

Andre Cilliers, Currency Strategist at TreasuryONE, said the rand was holding steady at just above R18.00 on Monday.

“The rand initially fell heavily on Friday on the back of the 30% tariff announcement, hitting R18.35 at one point, but recovered sharply later as the dollar weakened on the back of the payrolls number,” Cilliers said. 

“The rand closed at R18.05 and is currently consolidating around R18.03 as the Department of Trade and Industry makes a last-ditch effort to negotiate a better trade deal. President [Cyril] Ramaphosa is also scheduled to have a telephone call with Trump this week to discuss the tariffs.” 

Meanwhile, Ramaphosa said the decision by the US to impose a 30% tariff on South African imports highlighted the urgency with which South Africa has to adapt to increasingly turbulent headwinds in international trade.

Ramaphosa said recent analyses underscored the risks associated with over-dependence on specific markets, highlighting the need for South Africa to diversify its trade partnerships. 

By reducing reliance on limited export avenues, Ramaphosa said the country can bolster the resilience of its economy against unforeseen disruptions. Minister of Trade, Industry and Competition, Parks Tau, also said the higher tariff was a threat to the country’s export capacity, particularly in key sectors such as automotive, agro-processing, steel and chemicals. 

However, Investec chief economist Annabel Bishop noted that certain metals and minerals will see no tariff application, while steel and aluminium articles have already seen tariffs applied, and overall, the 30% has already seen 10% applied in the universal tariff.

Bishop said while the effect may be around -0.2% year-on-year to South Africa’s gross domestic product (GDP), final negotiations were key. She said the impact may be closer to -0.1% to -0.2% of GDP, including increased access to other markets, government support and the resolution of the freight crisis.

“While the US dollar weakness was not extreme, it was enough to halt the recent appreciation of the greenback, pulling the rand back to R18.00/USD. The rand itself has also been affected by SA’s 30% tariff on goods exported to the US,” Bishop said.

“With the US tariffs on automobiles and parts already in effect, and a sharp drop in these exports to the US, some effects will have already come through on the rand from this source, while the 30% for other goods take place on 7th August.”

BUSINESS REPORT