An analyst recently quipped that the market will remain unfazed for as long as Donald Trump is seen as “the boy who cried wolf” when it comes to the threat of trade tariffs.? The clock is suddenly ticking very loudly on a major tariff threat and the rest of this week has become a worrisome period for the Rand.
These are the mid rates at 6.20 today:
Brent Crude = $75.23 per barrel
- Not a terrible start to the week for the Rand but we unfortunately did give up a little ground thanks to a small bounce in the Dollar Index.? We opened the day at R18.32 to the Dollar, quickly fell to R18.41 before gradually recovering some of those losses to close at R18.36 which is where we open again this morning.?
- With Germany’s national election going as planned that allowed the Euro to enjoy a brief moment in the sun which in turn kept the Dollar Index from advancing, but after the initial relief rally the Euro has since given up ground as the difficult task ahead for their new coalition government has come into view.? Turning Germany’s economic woes around will be no mean feat, especially given their constitutionally protected “debt brake” which limits Germany’s budget deficit to just 0.35% of GDP and has been blamed for years’ worth of underinvestment, and with the Euro reversing earlier gains that saw the Dollar Index creep higher.?
- Most of the Dollar’s gains however came from an interview where Donald Trump confirmed that his planned 25% tariffs on Canada and Mexico “are going forward on time, on schedule.”? The Rand was pushed above R19.00 to the Dollar in late January/early Feb. when Trump warned that these tariffs would be implemented at midnight on Monday the 3rd of February but a last minute postponement for 30 days has seen us steadily recover into the R18.30’s since, but now it looks like these tariffs on a cumulative $918bn worth of goods is back on the table.? The Dollar will benefit as a safe haven asset should no further postponement materialise which is bad news for the Rand.?
- The following from CNBC discusses how weaker than forecast US data of late has hurt the Dollar, but how the reemergence of tariff threats is pushing the Dollar back up:? The Dollar rose on Tuesday after falling to its lowest in more than two months at the start of the week, buoyed by safe-haven flows after U.S. President?Donald Trump said tariffs on Mexico and Canada would proceed as planned. While the Dollar has fallen some 3% from its January peak following a raft of weaker-than-expected U.S. economic data that stoked worries over its growth outlook, sustained losses have been short lived due to lingering concerns over tariffs. “I think you're seeing a little bit of interplay between those forces. Heading towards these key tariff deadlines, it's hard to see a significant recovery in risk sentiment and that's going to keep defensive support for the US Dollar in place," said Ray Attrill, head of FX strategy at NAB.
- On the local front Moody’s has commented on the postponement of our Budget Speech and fortunately their remarks were not too discouraging, although they did come with a warning.? The following is from Business Day:? “In our view, the government remains committed to fiscal consolidation and we expect that the GNU will eventually reach an agreement to pass a budget that supports a continued gradual decline in the fiscal deficit. The delay points to some friction in the budget process within the coalition government which we have factored in our baseline assumptions about the functioning of the government. However, indications that the disagreement within the GNU on key policy areas is more entrenched and difficult to resolve than we expect would increase uncertainty around fiscal policy and weigh on SA’s policy effectiveness.”?
- Local market data today sees our leading business cycle indicator at 9:00.
- Possible USD mid rate trading ranges in the Rand today are R18.20 and R18.50.
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