Nicola Mawson
The rand plunged more than 1.6% to R18.26 against the dollar yesterday, its lowest in 11 days as investors continued to bet on news that US presidential candidate Donald Trump would be be the next president after the November elections following a botched assassination attempt, sending the greenback to briefly gained as a safe haven.
The attempt on Trump being shot at by a registered Republican, allegedly 20-year-old Thomas Matthew Crooks who was immediately gunned down by the Secret Service, dented investor appetite for risk assets and led to a slight dollar gain, with the rand strengthening since the end of April.
However, Old Mutual Group chief economist Johann Els said any dollar strength would have been a “blip”.
Els said that, with inflation in the US coming down and the country heading towards a rate cut, this would likely mean that the dollar will weaken, benefiting the local currency.
He added that the rand is significantly undervalued according to fundamentals and will likely strengthen towards the end of the year.
Els has previously said on the back of less political risk and economic growth will see the local currency strengthen to a range of between R14 and R15.
The rand has been on a strengthening trend since the end of April, reaching R17.95/$1 at the end of last week, though it has since weakened on some risk-aversion following the attempted assassination of Trump.
Investec chief economist Annabel Bishop said the rand could see some strength later this week as the risk aversion works its way out of the system, with the US FBI reported as having said there was no further safety threat currently seen, and the shooter appears to have acted alone.
“Risk aversions in global financial markets tends to see a sell-off of emerging market portfolio assets (bonds and equities), as well as other risky assets such as equities in advanced economies, weakening emerging markets currencies, and so the domestic currency,” Bishop said.
“With the US shooting seen to be an isolated instance so far, risk aversion is expected to wane over the course of this week, with the rand pulling back towards R18.00/$1, though dependent on global financial markets and data.”
Nolan Wapenaar, co-chief investment officer (CIO) at Anchor Capital, said the betting odds of Trump winning the election have jumped from 55% on Friday to 66% this morning.
“The events were horrific, however, the way it played out will likely favour Trump in the election. We expect a second presidency for Trump will see policies that are more aligned with higher interest rates and a stronger dollar,” he said.
“The closer he (Trump) gets to winning the election, the more we would expect the dollar to gain. That being said there is still a long time between now and the swearing-in of the election winner in January, 2025.”
André Botha, head of execution at TreasuryONE, said widespread greenback strength was expected after the events of the weekend.
However, he said: “In actual fact, the US dollar is currently on the back foot against most currencies. It seems that the firm bets of a possible rate cut by the Fed is currently outweighing any political news story out there.”
Botha added that a possible rate cut would usually mean that emerging market currencies would benefit, yet the rand and the Mexican peso are under pressure.
“Whether the rand move is emerging market-specific or just a little correction after the huge rally stronger that the rand had in the past week is still up for debate, but with all the political news and events in the market this week it will not be surprising if we have a very volatile week.”
Bianca Botes, director at Citadel Global, explained that the currency was selling off in line with other emerging market assets as expected, following the 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… This includes larger deficits and import tariffs,” she said.
BUSINESS REPORT