The South African rand experienced its sharpest drop in seven months on Wednesday, sliding by as much as 1.4% amid fears of a potential trade war fueled by US President-elect Donald Trump’s proposed economic policies.
The currency’s two-day decline marks its steepest loss since June 2024, making it the worst-performing emerging-market currency tracked by Bloomberg during this period.
The selloff intensified after a CNN report suggested Trump is considering declaring a national economic emergency, a move that could pave the way for widespread tariffs. This news unsettled global markets, strengthening the US dollar and pushing US bond yields higher, both of which typically weigh on risk-sensitive assets like the rand.
The recent downturn represents a stark reversal for the rand, which ended 2024 as one of the five best-performing emerging-market currencies for the first time in eight years. Its resilience last year was bolstered by rising investment levels, lower inflation, structural reforms, and favorable interest-rate differentials maintained by South Africa’s central bank.
However, this week’s developments have shifted sentiment. Marek Drimal, a strategist at Societe Generale SA, attributed the rand’s weakness to the strengthening US dollar and market anxieties over Trump’s potential trade policies.
“South Africa had been a favorite among investors, but concerns over the global trade landscape and a stronger dollar are prompting some to retreat,” Drimal explained.
Despite the current challenges, Drimal remains optimistic about the rand’s medium-term prospects. “We still believe the rand will be one of the top performers among emerging market currencies in 2025, supported by high nominal and inflation-adjusted yields,” he said.
The recent volatility highlights the sensitivity of emerging markets to global economic developments, particularly as South Africa navigates an uncertain trade and investment landscape.