Rand on the ropes over trade and rates

News24

5 days ago

Most emerging market currencies fell against a stronger dollar on Tuesday while stocks were mixed as investors awaited a slate of upcoming economic data, as the US tariff deadline drew closer.
MSCI's gauge tracking emerging market currencies fell 0.3% to its lowest level since late June, in a third session of declines.
The dollar index rose 0.2%, hovering near its five-week high, after surging 1% in the previous session.
Markets rewarded the greenback after the United States clinched a key trade deal with the European Union days ahead of the August 1 deadline, while talks with China continued.
US President Donald Trump on Monday said that trading partners that do not negotiate separate deals would soon face tariffs between 15% to 20%, well above the previously threatened 10%.
Most currencies in Asia weakened against the dollar, and so did South Africa's rand, which was on track for its fourth session of losses.
The rand hit R17.9865/$ early on Tuesday. It last traded above R18 more than a month ago.
By midday, it was trading around R17.93.
'The impact of tariffs on the domestic currency, if a trade deal is not reached for SA with tariffs around 15%, would be negative, as South Africa would lose on competitiveness, particularly motor vehicle and food exports to the US, reducing export activity,' said Investec chief economist Annabel Bishop.
Bishop added that an expectation that SA rates will be cut by 25 basis points on Thursday - while US rates are expected to be left unchanged - added to the rand's weakness this week.
'The US has not cut its interest rates this year, while SA has cut twice, once in January and once in May, by -25bp each time, narrowing the differential between US and SA interest rates, and reducing the relative interest rate return,' Bishop said.
Emerging markets have found themselves in the crosshairs of Trump's tariffs, with duties threatened on Brazil, Mexico, the BRICS group of which Brazil and South Africa are members, and many Asian countries.
"We will settle with just over 15% tariffs... while negative from a macro point of view, the world can live with these levels of tariffs," said Mohit Kumar, chief European economist at Jefferies.
"Eventually, it boils down to the data and we could see weakening in August data."
The impact of tariffs has started to show in US inflation data, and investors will scrutinise economic data scheduled through the week for more such signs.
Regional stocks were broadly higher, with Poland and Romania bouncing back 1% and 0.2% respectively, while South African stocks were up 0.6%.
Still, MSCI's index tracking global EM stocks was down 0.3%, with declines in some heavyweight Asian stocks weighing.
Currencies in emerging Europe weakened against the euro, as optimism over trade deals faded, with investors concerned about its implication for Europe.
The Hungarian forint was down 0.8% and set for its steepest one-day decline since April 11. The government slashed its 2025 growth forecast to 1%, down from 2.5%, prolonging a recovery from a 2022 inflation surge.
Poland's zloty slipped 0.4%. Its prime minister said that U.S. tariffs on European products could cost Poland around 8 billion zlotys (R39 billion), per preliminary estimates.
Russia's rouble fell 1.3% against the dollar, over-the-counter market data showed, a day after Trump shortened his deadline for Russia to end its war in Ukraine or face tariffs.