By: Bianca Botes, Director at Citadel Global

The biggest recent global event to have an effect on the rand’s performance was the Donald Trump assassination attempt at the weekend. The recent period of rand volatility amid heightened local post-election uncertainty has now been swapped out for greater sensitivity to global events, most notably the US elections, currency experts say.

“The rand is trading just over 1% weaker since Monday, and while increased volatility is on the cards, we are still looking towards further rand strength,” said Bianca Botes, Director at foreign exchange and treasury experts Citadel Global.

The rand is now expected to retain its improved position, following the unwinding of local risk premia, and as it will once again be influenced mainly by global market events.

Botes said the rand sold off this week in line with other emerging market assets, as expected, following this weekend’s events. “Political analysts believe the events from this weekend pretty much secured a Trump victory and therefore Trump policy needs to be priced in - including larger deficits and import tariffs. While these political events will heighten volatility, the data and subsequent US Federal Reserve (Fed) action will likely drive the broader direction of the United States Dollar (USD) and considering soft data and increased bets for rate cuts, the dollar will likely struggle to maintain a strengthening momentum purely driven by the political landscape.” The rand initially started the week at R17.98/$, R19.58/€ and R23.32/£.

Botes said the Dow Jones hit fresh all-time highs at the start of the week, while Chinese stocks were muted, as concerns weighed about heightened geopolitical tension should Trump return to the Oval Office. However, comments from Jerome Powell, noting growing Fed confidence that United States (US) inflation is approaching its 2% target, bolstered the mood. We are also seeing a rotation to riskier corners of the market as investors position for interest rate cuts by the Fed.

This followed last week’s relative rand stability after the announcement of the newly formed cabinet, ending a period of uncertainty and fears around the formation of the Government of National Unity (GNU). The market responded well, with the rand gaining 0.5% in Asian trade and trading at R18.o8/$. The rand’s gains were however swiftly eliminated when it reached R18.59/$ in the middle of last week. “It is clear that the rand remains volatile, in the wake of a multi-faceted economic and political global environment. The rand is however finding itself on a stronger footing than at the start of the year and will now start taking its cues mainly from international events again.”

While we saw some depreciation of the rand earlier in July, amid cabinet uncertainty as tense talks between the African National Congress (ANC) and Democratic Alliance (DA) resumed, the rand rapidly clawed back to where it was before the election period explained Botes.

Ahead of the elections, Citadel Investment Services predicted that a perceived positive outcome of the election from an investors’ perspective could see the rand gain momentum to trade below the R18/$ mark and set its sights towards the mid R17s, while a perceived negative outcome could have potentially seen the rand top R20 to the dollar.

Botes also advised of greater global forces at play. “While the election and coalition talks recently took centre stage, international data, in particular United States (US) data continued to set the broader market tone. The situation is normalising again.”

Speaking to the management of risk, Botes said when the rand strengthened to the low R18s Citadel Global contacted all its import clients to hedge exposure. Conversely, when the rand weakens against the dollar, they do the same to assist their export clients.  “This is all done on a portfolio approach, using different instruments that suit the client’s exposure and risk appetite.”