The South African rand fell sharply against a strong dollar on Wednesday as “Trump trades” soared following Donald Trump’s victory in the U.S. election.
Donald Trump made a historic comeback by capturing the White House after securing over 270 Electoral College votes needed to clinch the title of president-elect four years after leaving office.
At exactly 1525 GMT, the South African rand traded at R17.68 against the U.S. Dollar, down 1.7% from its previous close. The currency plunged 2.5% earlier in the day.
The dollar reached its highest level in four months and was on track for its largest single-day increase since March 2020, rising roughly 1.8% against a range of currencies.
Trump’s victory has ignited what are known as “Trump trades,” as markets expect a continuation of his policies, which might lead to increased economic growth in the near term but could also introduce inflationary pressures.
“If Trump’s policies are enacted fully, we will probably see the Federal Reserve not cut rates as much,” said Izak Odendaal, chief investment strategist at Old Mutual Wealth.
However, according to Odendaal, the Federal Reserve is still expected to reduce interest rates by 25 basis points when it announces its latest policy decision on Thursday.
Zain Vawda, market analyst at MarketPulse by OANDA, said South Africa’s mid-term budget statement last week raised concerns, adding complexity to the rand’s situation.
The government projected larger budget deficits and increased debt over the next three years, and on Monday, ratings agency Fitch expressed doubts about the government’s ability to meet some of its fiscal targets.
“This leaves the rand vulnerable to further losses against the greenback heading into the festive season,” Vawda said.
South Africa’s benchmark 2030 government bond also declined, with the yield rising by 8.5 basis points to 9.4%. The blue-chip Top-40 (.JTOPI) index closed roughly 1.6% lower on the Johannesburg Stock Exchange.