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The markets will be tuned to developments in the US-China trade dispute, said an economist.
The US on Monday announced that it would levy 10% tariffs on additional Chinese imports worth $200bn which will come into effect next week. These tariffs are in addition to the tariffs in place for Chinese imports worth $50bn.
But the rand appears to have held firm, having opened below the R15/$ mark on Tuesday morning at R14.91/$. By 11:43 it was trading at R14.90 to the greenback.
Analysts from NKC Economics explained in a market update that the rand and emerging market currencies managed to hold steady as the dollar weakened by 0.5% due to escalating trade tensions which led investors to “safe-haven” currencies.
RMB economist Mpho Tsebe said in a market update that although China and the US will be engaging in fresh talks about the dispute, it is unlikely a trade deal will be reached.
“It is still unclear how China will respond to the new tariffs given that the US exported about $130bn goods to China in 2017 – limiting their capacity to go tit-for-tat… Trump has threatened to impose additional tariffs on $267bn in Chinese goods if China retaliates, which is likely to have a bigger impact,” she explained.
Andre Botha, senior dealer at TreasuryONE, said that the market has likely priced in the reaction of the trade talks which is why there was no knee-jerk reaction to the release of the news.
“We feel that with the market taking the latest tariff tantrum in its stride and that it was fully priced into the market… The lack of reaction could mean that the market will trade in ranges as we await the response from China,” he said.
The rand is expected to trade within a tight range, ahead of the release of consumer inflation data on Wednesday and the Monetary Policy Committee’s interest rate decision on Thursday.
Adam Phillips, treasury specialist at Umkhulu anticipates that if the Chinese do not respond then the rand could trade between R14.80/$ and R15/$ but any response would be negative.
Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, said that the bias is toward a softer rand, with a short-term target level being R15.10.
The market expects inflation to pick up, but is still divided on what the rate decision will be, Botes explained. “We feel there is a 40:60 chance in favour of rates remaining unchanged, but a rate hike later this year is certainly on the cards.”
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