Rand sinks as US-China trade tensions rise

The rand hit a concerning milestone on Wednesday, crossing the R19.80 mark against the US dollar, reflecting deeper turmoil as the United States and China trade war went up a notch with retaliatory tariffs. 

This was prompted by US President Donald Trump’s announcement of substantial import tariffs last week, described by critics as 'Liberation Day', the rand has plummeted more than 5% against the greenback. 

Reacting to this, prominent economist Dawie Roodt said: “I am afraid it doesn’t look good. This is a real reset in terms of international politics and the international economy as well. We will find new alignments in terms of politics. In terms of the economy, we are going to see new alliances.”

While Trump later announced on Wednesday that he would pause many of his new tariffs for 90 days, he said he would raise the tariff on Chinese imports to 125% from the 104% level that took effect at midnight. 

"I have authorized a 90 day pause, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately," Trump wrote on social media.

Roodt warned that the world was edging towards a recession.

“But Donald Trump may change his mind again and reverse things, but even if he does, things are not going to be back to where we were two weeks ago. The world is going to be a different place from now on,” warned Roodt.  

Old Mutual chief economist, Johann Els, has also downgraded his South African growth forecast marginally, down from 2.2% to 1.7% in response to expected softness in US-linked exports, but does not foresee a local recession. The South African Reserve Bank’s most recent estimate was 1.9% for 2025.

“China and the Euro Area, South Africa’s primary trading partners, are expected to adopt accommodative policy stances, which should help offset lost momentum,” said Els.

Despite a recent weakness of the dollar, the rand found itself trading on the backfoot throughout Wednesday, weakening by 0.4% to R19.82/$1 by 6pm, illustrating the unique challenges faced by South Africa in a time of rising global trade tensions.

The rand set its record low at the height of uncertainty during the COVID crisis as investors pulled back on all risk positions and also traded within a whisker of the R20 to the US dollar in June 2023 when the US Ambassador falsely accused South Africa of supplying arms to Russia.

Wichard Cilliers, director and head of market risk at TreasuryONE, said this made the rand the worst-performing currency in the world.

“The rand is still trading weaker on the day, around the R19.80 levels and down around 7% in the month of April,” Cilliers said.

“We can expect the rand to remain under pressure due to global uncertainty surrounding tariffs. We also have our own local political issues to sort out.” 

Compounding these economic woes is the fracturing of South Africa's coalition government over a contentious Value Added Tax (VAT) dispute. 

The coalition, which was seen as a critical stabilising force in a politically charged environment, has now come under intense scrutiny and criticism, further eroding confidence in the country's economic governance. 

Nolan Wapenaar, co-chief investment officer at Anchor Capital, said the rand has faced an onslaught from domestic confidence flailing as the Government of National Unity (GNU) has displayed weakness and questions around its survival persisted.  

Wapenaar said this was dampening the global enthusiasm for South African assets at a time when the Trump trade war has financial markets distressed and investor risk appetite is rapidly shrinking.  

Wapenaar said that the rand could do anything in the near term, adding that a let up in the trade war would see some recovery, while further escalation would see the rand trade weaker than R20 to the dollar.

“We think that the fair-value for the rand is closer to R16.00 against the dollar. The massive risk-off sentiment means that the rand is significantly weaker than it ordinarily would be.  As the trade war escalates, the rand is likely to continue weakening.  It certainly could breach the R20 to a dollar level, though we do not think that the weakness will be sustained,” Wapenaar said.

“Fortunately, the trade war is resulting in lower oil prices, so consumers are less likely to feel the weaker rand at the petrol pump.  Instead, we will see this reflected in higher costs for goods with offshore inputs in supermarkets. This will also keep the interest rates in South Africa higher for longer, again taking some money out of consumers’ pockets.”

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