JOHANNESBURG – Following the third-quarter gross domestic product (GDP) figures, and the initial positive sentiment that followed the G20 summit, reality has unfortunately set in for markets.
Investors have realised that there is no formal agreement other than a gentlemen’s handshake between the US and China to put a hold on tariff increases as they take 90 days to renegotiate trade agreements, according to Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions.
President Trump has also referred to himself as “tariff man”, adding fuel to the fire, she told Business Report.
So why does this matter?
Botes said: “Although it does not have a direct impact on trade between South Africa and other countries, except for the steel tariff we saw earlier this year, the impact of the tariffs will ultimately drive up prices of imported goods in the US, resulting in higher inflation and higher interest rates.
“Since South Africa, along with other emerging markets, has high debt which is mostly foreign denominated, the ability to service this foreign debt diminishes as US interest rates rise, putting strain on an already severely strained local fiscus.”
Corporate treasury manager at Peregrine Treasury Solutions, Bianca Botes. Photo: Supplied
The rand succumbed to all this pressure breaching the R14-per-dollar mark to trade at R14.09 against the greenback at 3pm on Thursday, wiping away recent gains.
Senior currency dealer at TreasuryONE Andre Botha said the rand and other emerging-market (EM) currencies were under a fair amount of pressure as relations between the US and China set to sour over the arrest of the Huawei chief financial officer in Canada.
Botha warned: “The load-shedding narrative will start to weigh on South Africa’s growth expectation for 2019 and could cause further concern for the rand in the medium to long term.”
Botes shared simillar sentiment noting that there are a few local elements adding to the pain, although this contributes only about 20 percent to the state of the rand:
- Load shedding and the potential effect on economic growth as we head in to 2019;
- Parliamentary approval to amend Section 25 of the constitution;
- Soft current account data released mid-morning Thursday – the Q3 current account deficit widened to R176.6 billion.
“The rand has reacted very negatively, losing 1.4 percent against the dollar during trade today, and is once again above the R14 per dollar level.
“We are yet to feel the effect of the opening of the US market,” said Botes.