South African Rand Could Be Tariff Trade Outperformer: Nedbank

Image © Government of South Africa, reproduced under CC licensing

The South African rand could emerge as a relative outperformer amid global tariff trade tensions, according to Walter De Wet, analyst at Nedbank.

While import tariffs typically weaken affected currencies, the rand may be less vulnerable compared to the Mexican peso, Canadian dollar, and euro—provided South Africa avoids additional punitive tariffs.

"Import tariffs are synonymous with currency devaluations," De Wet noted. "In cases like China, pressure tends to build for depreciation, as seen during the 12% devaluation between 2018 and 2020 when the U.S. imposed tariffs."

The U.S. dollar has surged to its highest real trade-weighted level since the Plaza Accord in 1985, bolstered by U.S. trade policies and Federal Reserve actions. "Perhaps this should not be surprising, as import tariffs often drive currency devaluations," De Wet said. "Odds must favor the dollar appreciating further as more tariffs are imposed."

Despite the inflationary first-round effects of tariffs in the U.S., a stronger dollar could help offset rising import costs by making foreign goods cheaper. "A strong USD is likely to mitigate the tariff impact on domestic prices," De Wet explained.

For South Africa, the outlook depends on whether it faces new tariffs. "The rand should outperform currencies such as the MXN, CAD, and even the EUR—as long as South Africa does not get more punitive tariffs imposed," De Wet said. He explained that while many currencies may weaken under Trump's trade measures, the rand could prove more resilient.

However, market participants await more clarity on the scope and extent of U.S. tariffs before fully assessing their impact. "That inflection point should see some USD weakness or rand strength," De Wet said, suggesting that once the market adjusts, the dollar’s rally could fade.

On February 27, 2025, President Cyril Ramaphosa expressed his intention to negotiate directly with U.S. President Donald Trump to resolve disputes concerning South Africa's land reform policies and its legal actions against Israel at the International Court of Justice. These issues have led to strained relations, including the suspension of U.S. financial aid to South Africa.

Ramaphosa emphasised his desire for a constructive relationship and proposed a comprehensive deal encompassing trade, diplomacy, and political matters, though specific details were not disclosed.

The suspension of aid, amounting to approximately $400 million primarily designated for HIV/AIDS programmes, has raised concerns about potential impacts on public health initiatives.

Additionally, there is apprehension that South Africa's preferential trade status under the African Growth and Opportunity Act (AGOA) could be jeopardized. AGOA facilitates tariff-free access for certain South African exports to the U.S. market, and its potential revocation poses significant risks to sectors such as agriculture and manufacturing.

In a related development, South Africa's Minister of Mineral Resources, Gwede Mantashe, suggested the possibility of restricting mineral exports to the U.S. in retaliation for the aid suspension and potential tariffs.

This statement underscores the broader economic implications of the diplomatic rift and highlights South Africa's strategic significance in the global minerals market.

Despite these challenges, President Ramaphosa remains optimistic about resolving the disputes through dialogue and negotiation, aiming to preserve and strengthen the longstanding economic and diplomatic ties between South Africa and the United States.