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Standard Bank Group
20 June 2018

Geopolitical risk keeps rand under pressure

Shireen Darmalingam

  • The rand is now above 13.90 to the dollar, having sacrificed the “Ramaphoria” gains it had made in Q1. The rand’s trend in Q2:18, as for emerging market currencies, has been weaker.
  • The market is apprehensive as the trade spat between the US and China rages. New developments this week indicate a further $200bn of US tariffs on Chinese imports. President Trump plans to impose these tariffs, should China not abandon its retaliatory tariffs on US goods. Furthermore, he indicated that the US administration would be willing to increase tariffs beyond $200bn.
  • The geopolitical risk of a full-blown trade war is seeing markets electing to pay for protection, as is evident in the increase in the rand’s 3-month implied volatility against the dollar vs. the actual fluctuations (see chart below). Most of this month’s rand volatility has been due to the stronger dollar; the greenback is a safe haven during times of risk aversion.
  • We are wary of further negative risks to the rand in the short term.

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