The South African rand experienced a significant drop for the third consecutive session on Tuesday, reaching a three-month low due to ongoing volatility. Investors are apprehensive about the potential inflationary impact of president-elect Donald Trump’s anticipated fiscal policies and trade actions, which could complicate the US Federal Reserve’s efforts to control inflation. Consequently, the US dollar surged towards a four-month peak against major currencies, while bitcoin continued its record rally as investors flocked to trades expected to benefit from the incoming Trump administration.
On Tuesday morning, the rand broke through the R18/$ mark for the first time in three months, losing 3% over the past week. By late morning, it was trading at R18.0069/$. In September, the rand had reached R17.10, its best level since February 2023, driven by expectations of deep US interest rate cuts that would make interest earned on rand assets more attractive in comparison.
The euro struggled near a seven-month low reached overnight, and the yuan fell to a more than three-month low, with Europe and China both being major targets of potential Trump tariffs. The US dollar index, which measures the currency against six peers including the euro, rose 0.16% to 105.59, approaching Monday’s high of 105.70, its strongest since July 3. Leading cryptocurrency bitcoin hit a new all-time high of $89,637 earlier in the day, with Trump vowing to make the United States “the crypto capital of the planet.”
Kyle Rodda, a senior financial markets analyst at Capital.com, suggested that if history is any guide, bitcoin could easily finish the year around $100,000. Meanwhile, the expectation of US economic outperformance and aggressive trade practices from the Trump administration continues to push the US dollar higher. Markets are scaling back expectations of Federal Reserve rate cuts, with a cut at the December meeting now in question.
Trump’s Republican Party is projected to control both houses of Congress when he takes office in January, enabling him to pursue an agenda of tax cuts and reducing the federal government. Potentially inflationary tariffs and immigration policies have led to market odds of a quarter-point Federal Reserve interest rate cut on December 18 being reduced to about 69% from nearly 80% a week ago, according to CME Group’s FedWatch Tool.
Trump has warned that the eurozone will “pay a big price” for not buying enough American exports, with cars being a particular target. He has also threatened China with blanket 60% tariffs. The offshore yuan dipped to its weakest level since August 1, before last trading at 7.2469 per dollar. The Australian dollar, influenced by China’s economic outlook, fell 0.33% to $0.65525. China is South Africa’s top trading partner and the world’s largest consumer of commodities.