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The victory of Donald Trump spells trouble for the rand and Brics allies an economist warns, as Trump’s protectionist policies, trade conflicts and geopolitical decisions may lead to increased future currency volatility and trade uncertainty.
Trump’s victory already led to “notable volatility” in the South African rand, with as much as 2.5% of its value erased, leaving it to trade at R17.82 by midday on Thursday, Bianca Botes, director at Citadel Global, points out.
“Initial market responses to the news saw the rand weaken and brought a day of volatility to the fore, influenced by uncertainty over potential shifts in US policies. The reaction, although volatile, does not reflect a “shock” factor and Trump trade has been priced in over the past few months. However, we are entering a new era of uncertainty.”
She says South Africa’s ties with seemingly anti-west countries as part of the Brics countries and Trump’s previous hardline stance against Iran which now forms part of Brics puts South Africa in a precarious position on the global stage.
“South Africa’s neutral or positive diplomatic and economic ties with Russia and Iran could strain its relationship with the US under Trump. Should the US pressure South Africa to scale back these associations, it may create diplomatic friction with current allies or even lead to punitive trade measures, negatively impacting investor confidence and the rand.”
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Botes says a concerning issue for African and South African trade with the US is the long-standing African Growth and Opportunity Act (Agoa). “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 the US economy and might consider revising or even restricting South Africa’s access under this act if he perceives South Africa’s policies as misaligned with US interests, including the interests of its local manufacturers. Any loss of Agoa privileges would likely disrupt South African exports, affecting growth projections and placing further pressure on the rand.”
She says another key issue is Trump’s adversarial approach to China, another Brics ally of South Africa. “Trump’s 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.”
Botes cautions that the rand’s performance is always closely tied to global commodity demand and it may be too early to tell how a Trump presidency might affect this demand. “If Trump’s policies disrupt global growth, particularly in major economies like China, South Africa’s mining and commodities sectors could suffer, putting further pressure on the rand.”
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Prof. Raymond Parsons, economist at the NWU Business School, says Trump will focus on the US economy. “While the decisive American election mandate has strengthened political certainty within the US, it has heightened market volatility and uncertainty elsewhere, including among emerging economies.
“The US financial markets and dollar have strengthened in the immediate aftermath of the US elections but the rand, for example, has already weakened. Policy uncertainty may eventually prevail over political continuity in the current global economic outlook. Political rhetoric will eventually be converted into policy outcomes by the Trump administration next year, such as heightened protectionism. Among the more tangible immediate policy commitments by a Trump presidency are of a general US tariffs imposition of 20% on all imports and as much as 60% on Chinese imports.”
Johanna Kyrklund, group chief investment officer at Schroders, expects a soft landing for the US economy. “The key risk is on trade: we could start to hear pronouncements from Trump quite soon. In the short term, a protective trade stance is supportive of the US dollar and poses a risk to growth outside of the US. We would expect the Chinese authorities to continue with stimulative policies to offset this.”
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Meanwhile, Bitcoin has hit an all-time high on Trump’s election performance, breaking past $75 000, surpassing its previous high of $73 500 in March. Trump’s win boosted crypto, with investors favouring his pro-crypto stance. Trading volumes doubled, with the total crypto market cap up 14% overnight.
Bitcoin is currently trading at R1 323 115 at 12h48) on Luno. The rest of the crypto market has also surged.
Christo de Wit, country manager for Luno, points out that Trump repeatedly and publicly vocalised his support for the development of the cryptocurrency industry in the US, while his opponent Kamala Harris has been less clear about plans for the industry’s future should she win the election.
“We have seen a significant uptick in trading volume on Luno over the past 24 hours in response to the positive market movements. Traders favour Trump’s pro-crypto stance, which some speculate could bring a friendlier regulatory environment to the sector.”
Bitcoin and Ethereum both spiked over 8%, while others like Dogecoin and Uniswap are stealing the show with 20% and 30% gains, respectively, over the last day. The market cap for all cryptos jumped by 14% overnight and trading volumes across the industry have more than doubled.
The top movers are:
De Witt says the total crypto market cap stands at $2.48 trillion (+11%). On Wednesday Bitcoin’s daily high was $70 495 and its daily low was $67 473, with a market capitalisation of $1.45 trillion (59% of the market). Bitcoin’s 24-hour trading volume was $93.28 billion (+123%).
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