What a Trump presidency means for the rand

While the rand came under pressure on Wednesday after Donald Trump won the US election, it has not fared as badly as expected and may hold its ground in the short term. 

However, over the long term, if Trump’s stated positions become policy, the rand could weaken severely, putting pressure on the broader South African economy. 

There is even an outside possibility that Trump’s policies reignite global inflation and threaten the Reserve Bank’s interest rate cutting cycle as a weaker rand increases the price of imports. 

This is feedback from Citadel Global executive director Bianca Botes, who explained the possible effects of a Trump presidency on South Africa and the rand. 

In the immediate term, the election outcome, with former President Trump winning in a landslide victory, has led to “notable volatility” in the South African rand, with as much as 2.5% of its value erased, Botes said. 

“Initial market responses to the news today saw the rand weaken and brought a day of volatility to the fore, influenced by uncertainty over potential shifts in US policies.”  

“The reaction, albeit volatile, does not reflect a ‘shock’ factor, and the Trump trade has been priced in over the past few months. We are, however, entering a new era of uncertainty.” 

Botes explained that a Trump victory did not surprise financial markets, and the reaction was largely expected. 

“Therefore, when looking at the rand’s movement, it has not been as exaggerated as one would have expected,” she said. 

This is because markets have a much better understanding now of what a Trump presidency entails than when he came in as a political unknown in 2016. 

“The markets are much more conditioned now to react to actual policy movements instead of trading on the back of noise,” Botes said. 

She explained that the rand is not much weaker than it has been in the past few weeks, trading between R17.70 and R17.80 to the dollar during election day. 

In the early morning trade on Thursday, the rand even strengthened to R17.58 to the dollar as of 08:30. 

However, over the long term, Botes expects a Trump presidency to have a significantly negative impact on the rand with a potential slump in commodity prices as a result of tariffs on China. 

More crucially, a Trump presidency threatens South African exports to the US under the African Growth and Opportunity Act (AGOA). 

Trump is unlikely to renew South Africa’s participation under AGOA due to its close ties to China and other BRICS countries. 

AGOA allows South Africa duty-free access to the US for certain exports, which play an important role in supporting the South African economy. 

Trump has in the past questioned the benefits of AGOA for their economy and might consider revising or even restricting South Africa’s access. 

Botes said any loss of AGOA privileges would likely disrupt South African exports, affect growth projections, and place further pressure on the rand. 

Another major issue for South Africa is Trump’s adversarial approach to China, with the promise of tariffs and trade restrictions significantly hampering the world’s second-largest economy and its demand for commodities. 

“Trump’s emphasis on protecting American industries and reducing trade deficits could mean tighter trade barriers – ushering in a new era of American protectionism that is likely to cause major disruptions to current global trade dynamics,” Botes said. 

Should he resume tariffs or restrict imports broadly, it could slow global trade, diminish demand for South Africa’s exports and weaken the rand due to reduced foreign exchange inflows.

Trump’s protectionism may create ripple effects that will weaken demand for commodities, a major export for South Africa. As global commodity demand fluctuates, so does the rand, which is highly sensitive to shifts in export volumes and prices. 

Botes said a Trump presidency could trigger another round of trade or geopolitical tensions, which generally increases risk aversion in global markets. 

As a result, investors may pull back from emerging market currencies, including the rand, in favour of ‘safer’ assets like the dollar, leading to further rand volatility. 

If trade tensions between the US and China escalate, it could indirectly impact South Africa, given its strong export and investment ties with China.