PFS Market Sentiment Podcast – Rand Strength, USD Weakness, Gold Soars, Markets Volatile, SARB Cautious on Rates

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Talking Rand, USD weakness and Golds record high.

💹 Major Currency Snapshot:

USDZAR: 18.57
EURZAR: 21.31
GBPZAR: 24.86

Introduction:

The global economic landscape is currently facing significant uncertainty due to US President Trump’s trade policies and potential actions regarding the Federal Reserve, which are causing downward revisions in growth forecasts for many countries, including South Africa. Despite these headwinds, South Africa’s economy possesses certain characteristics, such as a weaker rand and diversified trade partners, that could offer some resilience. Furthermore, the rise in gold prices reflects the increased investor demand for safe-haven assets amidst this global uncertainty.

Key takeaways from sources:

  • US President Trump’s trade policies, particularly tariffs, are generating significant uncertainty in the global economy. This uncertainty is disrupting supply chains and causing confusion for industries and investors. Even a temporary pause on tariffs has not eliminated this uncertainty.
  • This global uncertainty, stemming from Trump’s actions, has led to downward revisions in economic growth forecasts for many countries, including South Africa. The IMF has specifically cited the economic shock from tariffs as a reason for lowering South Africa’s growth forecast. The South African Reserve Bank (SARB) has also revised its growth outlook downwards, pointing to rising volatility in the United States as a key driver.
  • Trump’s escalating criticism and potential actions against US Federal Reserve Chair Jerome Powell are adding another layer of concern to the economic outlook. This raises questions about the central bank’s independence and could lead to a significant loss of confidence in the US economy and substantial financial market volatility.
  • Amidst this global uncertainty, gold has seen a surge in price, reaching new all-time highs. This reflects increased investor demand for safe-haven assets, driven by trade tensions, concerns about the Federal Reserve, and geopolitical risks.
  • Despite the global headwinds, the South African rand has shown some strength, benefiting from a weaker US dollar and the soaring gold price. While the US tariffs will inevitably affect South Africa due to its open economy, less than 8% of its exports go to the United States, potentially limiting the impact compared to other nations.
  • Some analysts believe South Africa can avoid a recession and achieve better economic growth than in 2024, partly due to a weaker rand and the potential for diversified trade with partners like BRICS nations and Europe.
  • The South African Reserve Bank (SARB) is expected to maintain a cautious approach to interest rate adjustments in the face of heightened global uncertainty, particularly concerning US tariffs. This means that previously anticipated interest rate cuts may be delayed as the SARB assesses the evolving economic landscape.
  • Economic forecasting in the current environment is highly challenging due to the unpredictability of global and domestic factors, as evidenced by the SARB’s forecast errors in the past.
  • Big tech companies in the US have experienced a significant decline in their combined market value since Donald Trump’s inauguration, partly attributed to the disruptions caused by his trade policies.

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Sources referenced:


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