The rand was almost 2% weaker against the dollar on Tuesday morning‚ as the trade spat between the US and China escalated‚ casting a shadow over the global economic outlook.
The latest slide took the rand dangerously close to R14/$ — levels last visited late in November — showing its vulnerability to shifts in global risk perceptions.
The rand is now the worst-performing currency among its emerging-market peers in the second quarter‚ behind the Brazilian real‚ Turkish lira and Argentinean peso.
The weaker rand fuels inflation as it pushes up the cost of imported goods‚ although exporters tend to benefit as the weaker currency boosts their competitiveness.
US president Donald Trump’s “America First” pledge played out negatively again on global markets‚ hitting stocks and emerging-market currencies in particular.
On Monday‚ Trump threatened to impose additional tariffs on Chinese imported goods. This is over and above the $50bn worth of Chinese goods which will be subject to tariffs from July.
China has vowed to retaliate in kind‚ leaving the markets wondering about the potential consequences for the world economy.
“The broader mix of factors has soured somewhat after the markets’ initial positive reaction to the new ANC leadership‚” said Ashley Dickinson‚ head of fixed-income dealing at Sasfin Wealth.
“Aside from the contagion effect of Latin America and Turkey‚ we now have to deal with the actions of an unstable US leader who is bent on causing developing markets all sorts of misery with his poorly thought-out tariff tantrum.”
Argentina‚ Turkey and Indonesia have recently raised interest rates to bolster their currencies against the effect of the stronger dollar amid the expectation of more increases in US interest rates.
Local bonds were much weaker in early trade‚ with yield on the benchmark R186 rising to 9.18%‚ its highest point since mid-December‚ from 9.06% on Monday.
“The key question is now where the rand is likely to go from the current levels. We still don’t see good fundamental justification for the magnitude of the current slide‚” said ETM Analytics market analyst Halen Bothma.
At 10:02am‚ the rand was at R13.8334 to the dollar from R13.6458‚ R16.0316 to the euro from R15.8612 and R18.2689 to the pound from R18.0734. The euro was at $1.1589 from $1.11624.