In the latest episode of the global trade war, the Trump administration has zeroed in on China, de-escalating trade tensions with other nations and isolating Beijing as the main focus of its coercive trade strategy. US tariffs on Chinese imports surged to an unprecedented 125%, while tariffs on dozens of other countries were paused for 90 days, reverting to a baseline 10% rate. The US and China are currently engaged in a powerplay game of brinkmanship, and other nations are increasingly going to have to pick sides and face consequences for their decisions. The decision also suggests the Trump administration realised it couldn’t fight a trade war on all fronts and needs its allies’ support as it hones its focus on what it perhaps sees as a stubborn, if not challenging, China. By targeting China exclusively, the US aims to maximise pressure on the world’s second-largest economy while rallying allies to counter Beijing collectively.
The move has reduced global recession risks and supported risk sentiment overnight. The explosive overnight rally on Wall Street and in Asian markets this morning has been nothing short of staggering, with the ripple effects boosting sentiment across emerging markets just as powerfully. Yesterday, any firm stance in this volatile climate was akin to rolling the dice. Trump’s unexpected pause on reciprocal tariffs ignited a frenzy of short covering, propelling the S&P 500 up 9.5%, the Dow Jones 7.9%, and the Nasdaq a jaw-dropping 12.0%. Such rebounds are unheard of, clawing back at least 40% of the losses racked up since mid-March.
One should expect a strong positive reaction for SA, albeit not quite on the same scale due to continued GNU uncertainty. The ZAR, which yesterday flirted with breaching the R20.0000/$ mark, has sharply reversed course and is now hovering nearer to 19.0000/$ than 20.0000/$ this morning. Should the Trump administration have inadvertently nudged more nations toward pursuing zero-tariff trade deals among themselves, this could swiftly morph into a highly favourable outcome. What once loomed as a threat might now unlock substantial opportunities, potentially fuelling global growth over the long haul.
ZAR Markets
The USD-ZAR has broken back below 19.5000 as global risk appetite recovers on the Trump administration’s tariff U-turn. It has brought much-needed reprieve for the local unit, which may remain under pressure due to continued domestic political uncertainty. Technical analysis points to some USD-ZAR support around 19.2412, which lines up with the 38.2% Fibo retracement level of the pair’s most recent uptrend. A break of this level would open the door for a move towards the 50.0% Fibo retracement level at 19.0275, although this may need a fresh catalyst to materialise.
Global FX Markets
China is allowing the yuan to gradually weaken against major global currencies as it faces mounting pressure from an escalating trade war with the United States, which threatens to further destabilize its already fragile economy. On Thursday, the onshore yuan fell to its lowest level against the U.S. dollar since the global financial crisis, and also hit a 15-month low against a broader basket of currencies, before slightly recovering ahead of a high-level government meeting on economic stimulus. The People’s Bank of China (PBOC) has steadily reduced the yuan’s daily reference rate for six consecutive sessions, signalling a controlled weakening of the currency. This approach is aimed at boosting export competitiveness without triggering market panic. Under China’s managed exchange rate system, the yuan is allowed to trade within a 2% band of the PBOC’s daily fixing. The gradual devaluation strategy helps the yuan underperform against its trading basket in a subtle way, mitigating the impact of U.S. tariffs. The shift in focus to non-U.S. trading partners is becoming more apparent, especially as President Trump has imposed 125% tariffs on Chinese goods while pausing tariffs for other countries. In response, China has imposed its own 84% levies on U.S. imports, signalling a prolonged trade standoff.