The rand recovered instantanously on Wednesday night after suffering a near record low earlier in the day after US President Donald Trump announced a 90-day pause on his sweeping tariffs, whic hammered global markets and raised the odds of recession.
Trump on Wednesday gave all countries a 10% baseline except China, which will see even higher levies at 125%, saying that more than 75 countries had asked for negotiations over the hefty tariffs.
"Based on the lack of respect that China has shown to the World’s Markets, I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately" Trumo said on Truth Social.
"Conversely, and based on the fact that more than 75 countries have called Representatives of the United States...to negotiate a solution to the subjects being discussed...I have authorized a 90 day pause, and a substantially lowered reciprocal tariff during this period, of 10%, also effective immediately."
The rand immediately surged by 2.03% to R19.34 against the US dollar at 8pm after the announcement, rising sharply from R19.80-mark it had traded at around 5pm as the US-China trade war escalated.
Since the announced substantial import tariffs by US President Donald Trump last week, described by critics as 'Liberation Day', the rand had plummeted more than 5% against the greenback.
The rand set its record low at the height of uncertainty during the COVID crises 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.
The US had earlier announced that it would impose a 104% tariff on Chinese goods from Thursday, and China also announced an additional 50% tariffs on US goods to be implemented the same day, taking the tariffs up to 84%.
The rising unilateralism and protectionism in the US have significantly impeded normal economic and trade cooperation between the two largest economies in the world and South Africa’s largest trading partners.
Speaking on Wednesday afternoon before Trump's announcement, Wichard Cilliers, director and head of market risk at TreasuryONE, said the trade war had 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 also 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 will 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 can keep 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 come through as higher costs on 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.”
BUSINESS REPORT