The rand weakened for a third consecutive trading day as investor caution grows before monetary policy decisions in the US and SA this week, while a looming August 1 deadline for an increase in US tariffs on SA exports added to the pressure.
By 6.30pm on Monday the local currency had weakened 0.82% to R17.88/$, as the greenback firmed on the trade deal struck by the US and the EU.
“The rand has lost ground against the dollar as the greenback gained support from the confirmed, better-than-expected US-EU trade deal,” said Regenesys Business School chief economist Annatjie van Rooyen.
The deal, reached at the weekend, sets a 15% baseline tariff on nearly all EU goods entering the US, down from the previously threatened 30%.
It includes $600bn in planned EU investment in the US economy and commits the EU to significantly increase purchases of US energy and military equipment, with the value of these transactions expected to total about $750bn (R13.4-trillion).
US President Donald Trump has fuelled uncertainty by saying tariff rates on smaller countries, including many in Africa, could be 15%-50%, though a baseline 10% tariff may apply.
“SA still faces a 30% tariff on US imports of SA goods but aims to secure a trade deal that would exempt certain key exports,” said Van Rooyen.
Beyond the EU, the US continues to renegotiate or potentially alter deals with other major trade partners such as China, Japan and the Association of Southeast Asian Nations (Asean), while agreements with Mexico and Canada, two of the US’s biggest trading partners, have yet to be reached.
The Asean consists of ten member states: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
US commerce secretary Howard Lutnick has said the August 1 deadline for imposing tariffs will not be extended, raising the possibility of reciprocal tariffs on countries without deals.
“Risk aversion has subsided somewhat as the US makes progress on signing trade deals with key partners, most recently with the EU at the 15% tariff agreement, but uncertainty remains due to varying tariffs by product and pending agreements with other nations,” said Investec chief economist Annabel Bishop.
“If SA does not secure a trade deal, tariffs of about 15% would negatively affect competitiveness, especially in motor vehicle and food exports.”
Market participants are also focusing on the monetary policy decisions this week. The Fed is widely expected to maintain interest rates on Wednesday amid data pointing to a 2.4% quarter-on-quarter annualised rebound in second quarter GDP after a contraction in the first.
In SA, the Reserve Bank is expected to cut the repo rate by 25 basis points to 7% after two cuts earlier this year, narrowing the interest rate differential with the US and reducing the rand’s relative yield appeal, further pressuring the currency.
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