South African rand on backfoot as U.S.-China tensions prompt caution

PUBLISHED: Wed, 12 Aug 2020 11:44:53 GMT

JOHANNESBURG (Reuters) – South Africa’s rand edged weaker on Wednesday, ending a brief recovery rally as intensifying tensions between Washington and Beijing prompted investors to stay on the sidelines.

At 0645 GMT the rand was 0.13% weaker at 17.5175 per dollar compared to Tuesday’s peak of 17.4200.

The currency has suffered sharp losses in the past two weeks, losing more than 7% of its value against the dollar as sentiment towards emerging market currencies soured with a pickup in the global economy seeming to be slower than initially hoped.

In early trade the dollar was a touch higher against a basket of major currencies.

Sentiment toward risk was soured by still simmering tensions between the United States and China, which were ratcheted higher with U.S. President Donald Trump’s ban on TikTok and WeChat.

The rand has been weighed down by poor economic data pointing to a deep recession in South Africa in 2020 due to the impact of the pandemic and a slow recovery in 2021. On Tuesday manufacturing figures for June showed a 16.3% year on year contraction after activity shrunk 32.4% in May.

Business confidence and retail sales figures due later in the session are also set to show a strained economy.

“Due to the fragile economy, the currency remains vulnerable, especially if risk aversion rises again,” said Commerzbank’s emerging market analyst Elisabeth Andreae in a note.

“The downside risks to (the) rand include not only an unfavourable course of the pandemic with further (major) waves of infection, but also renewed fears of an emerging market crisis or an escalation in US-Chinese relations.”

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