US President Donald Trump signs executive orders during his inauguration on Monday. Picture: Christopher Furlong / Getty Images
Nicola Mawson
Following Donald Trump’s inauguration as the 47th President of the United States, markets sighed a breath of relief as he did not immediately announce feared tariffs that could see South African exports nailed an extra 10% upon being shipped to the world’s largest economy.
The rand was trading in a range of between R18.53 and R18.68 against the US dollar on Tuesday, with Trump’s second term expected to reshape the global economy, with trade tariffs, tax cuts, and influence inflation and interest rates.
Andre Cilliers, currency strategist at TreasuryONE, said the rand had benefited from dollar weakness after Trump refrained from an immediate tariff announcement, with the greenback retreating to mid-December levels.
The JSE’s All Share Index surged more than 0.4% to above 85 000 index points mark.
Trump hinted at potential 25% duties on imports from Canada and Mexico. He added that the US’ new President directed federal agencies to investigate trade deficits, suggesting a measured approach to tariffs for maximum negotiation leverage.
Cilliers said positive signals emerging from the World Economic Forum currently being held in Davos on local reforms and infrastructure investment also contributed to the currency’s resilience.
However, he said implementation of these promises will be key.
At the convention of the world’s leaders, South Africa is showcasing energy reforms and market transformation, elevating private sector participation, advancing renewable energy investments, and global leadership in energy transition.
Cilliers said that, while the dollar remained overvalued, further declines will depend on Treasury yield movements and clarity on Trump’s policies.
He said the rand was likely to consolidate near the current levels, influenced by dollar trends and domestic economic indicators.
Anchor Capital’s morning note yesterday indicated that oil prices declined 0.8% on the back of Trump’s indication that he planned to declare a national energy emergency to bolster strategic reserves and expand US energy exports globally.
Another driver for the lower oil prices, Anchor Capital said, was expectations that Trump would relax “curbs on Russia’s energy sector in exchange for a deal to end the Ukraine war offset concern of supply disruption from harsher sanctions”.
Maarten Ackerman, chief economist at Citadel, said Trump’s second term as President was set to shape global economic trends and impact South Africa’s markets in significant ways.
Ackerman noted that there was subdued immediate market reactions as many of Trump’s anticipated policies have already been priced in, including expectations for more fiscal spending as is seen in rising US bond yields.
“A lot of the potential economic policies have been priced into the market. Obviously, whatever those policies are going to mean for the economy, you won't see any reaction right now,” as it would take time for Trump to implement the plans and impact markets, he said.
However, other proposed policies, such as 60% trade tariffs on China, could create ripple effects for emerging markets like South Africa as it would weaken that country’s currency, Ackerman said.
“Trade wars could weaken global growth and pressure the rand, but aggressive Chinese economic stimulus could benefit South Africa as a key commodity exporter,” he said.
A trade tariff on South Africa would disincentivise investment, Ackerman argued, in addition to other structural risks affecting investment.
He also flagged risks related to the African Growth and Opportunity Act (Agoa) being revived as this underpins South Africa’s automotive sector among others.
“A reduction in Agoa benefits could harm one of South Africa’s few growing manufacturing sectors, with significant implications for gross domestic product and jobs,” he noted.
Disagreeing with Cilliers, Ackerman said Trump’s fiscal policies were likely to strengthen the US dollar, challenging local growth prospects and putting upward pressure on inflation.
BUSINESS REPORT