Rand takes a hit after former President Donald Trump’s attempted assassination

The rand weakened on some risk-aversion following the attempted assassination of former US President Donald Trump, but it is expected to strengthen later this week.

The rand has been strengthening since the end of April, reaching R17.95/USD at the end of last week.

However, it has since weakened due to some risk aversion following the attempted assassination of ex-US President Donald Trump.

Investec’s chief economist Annabel Bishop said the rand could strengthen later this week as risk aversion works its way out of the system.

She is optimistic as the FBI reported there is no further safety threat, and the shooter appears to have acted alone. 

In President Joe Biden’s address, he warned that they don’t know the motive of the shooter or his opinions or affiliations. 

He added that the political rhetoric in the United States has gotten very heated and that it was time to cool it down. 

“In America, we resolve our differences at the ballot box.  That’s how we do it, at the ballot box, not with bullets,” he said.

“The power to change America should always rest in the hands of the people, not in the hands of a would-be assassin.”

Bishop explained that risk aversions in global financial markets tend to cause a sell-off of emerging market portfolio assets, such as bonds and equities.

These sell-offs weaken emerging market currencies, like the South African rand, which explains Monday’s currency weakness.

“With the US shooting seen to be an isolated instance so far, risk aversion is expected to wane over this week,” Bishop said.

She expects the rand to pull back towards R18.00/USD, although dependent on global financial markets and data.

Last week, the core inflation measure of consumer price index (CPI) came out, indicating a moderation in underlying inflation pressures at the consumer level.

While no interest rate cut is widely expected to occur in the United States this month, markets will scrutinise Federal Open Market Committee commentary.

Stakeholders will look for an indication of whether the first United States rate cut will occur in September or November, with the former likely prompting rand strength.

The rand has averaged R18.22/USD this month, with Q3.24 still expected to see the quarter average R18.00/USD.

However, the currency’s performance will depend on the FOMC communication at the end of the month.

“A tilt to a dovish tone would likely drive the rand towards the R17.50/USD mark,” Bishop said.

However, the persistence of a balanced, cautious tone instead would likely keep the rand weaker.

The rand is also vulnerable to other events, the decisions by the South African Reserve Bank (SARB).

The SARB has most recently indicated it is only likely to cut interest rates next year. However, a quicker inflation descent than forecasts could bring the first cut into an earlier period.

A delay in local interest rate cuts and a quicker start to the US interest rate cutting cycle would widen the differential between SA and US interest rates and add to rand strength.

The next interest rate decision meeting in South Africa is at the MPC (Monetary Policy Committee) meeting on 18 July 2024.

ZAR/US Dollar on Monday, 15 July 2024